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Euro attempts to bounce off balance line

Nearly all major currencies showed gains heading into the weekend. The biggest gains against the US dollar were shown by the New Zealand dollar ( 1.93%). Smaller increases were posted by the Australian dollar ( 1.90%), the euro ( 0.70%), the Canadian dollar ( 0.68%), the British pound ( 0.64%) and the Japanese yen ( 0.10%). Only the Swiss franc ended the week in decline (-0.32%).

The euro rose 0.03% to 1.1879 on Friday. After the release of US macro data, the key pair spiked to 1.1909. The NFP print came as a major disappointment to investors. US job growth fell short of expectations by a wide margin in August amid declining demand for services and labor shortages due to rising Covid-19 cases. Dollar selling picked up with renewed impetus, with the DXY dropping to 91.80.

The US economy created 235k jobs in August after increasing by 1.05 mln in July (vs. the 750k median consensus). The unemployment rate fell to 5.2% from 5.4% in July, in line with expectations. Average hourly wages rose 4.3%, up from 4.1% in the previous month.

The sluggish jobs report rules out the announcement of a Fed stimulus taper in September. If there is no taper announcement on September 21-22, there will be two more FOMC meetings this year, November 2-3 and December 14-15. If employment numbers recover by November and inflation data rise unexpectedly, a November announcement could be in the cards. If September employment increases by several hundred thousand jobs and inflation shows further signs of slowing, the FOMC may wait until next year to assess incoming job reports between the November and December meetings.

Todays macro agenda (GMT 3)

09:00 Germany: factory orders (July); Forecast: -1.0% MoM, previous reading: 4.1% MoM

11:30 Eurozone: Sentix index (September); Forecast: 18.3, previous reading: 22.2

11:30 UK: construction sector PMI (August); Forecast: a decline to 56.9 vs. 58.7 in the previous month

14:10 UK: BoE Monetary Policy Committee member Catherine Mann

US and Canada – offline in observance of Labor Day

Current outlook

Asian trading saw major currencies trading in the red. The aussie dollar moved lower amid an uptick in the number of Covid diseases and the RBA’s upcoming meeting. The number of coronavirus cases in Australia clouds the outlook for local lockdowns to be lifted.

In addition, the oil market exerted a negative impact on commodity-linked currencies. Brent crude fell this morning as the Saudis lower oil prices to attract buyers as OPEC boosts production. Aramco cut its official selling price for all grades of oil delivered to Asian refineries in October.

Three central bank meetings are scheduled to be held this week: the ECB, the RBA and the Bank of Canada. These events will keep traders on their toes as US employment data for August showed lackluster job gains and rapid wage growth (people do not want to work as they have enough benefits to make ends meet).

US markets are closed for Labor Day on Monday. Treasury bonds are not traded.

Technical analysis

On the hourly timeframe, the euro is trading near the balance line (55-day SMA at 1.1869). Below the balance line is the trendline (1.1860). These lines form good support for buyers, but given that today is a holiday in the US in Canada, market volatility may be low.

The euro has been gaining against the US dollar for two weeks in a row. The charts show that a downward correction is shaping up. On the daily TF, the AUDUSD and NZDUSD currency pairs have reached the trendlines. If buyers start taking profits on long positions in these pairs, the dollar will strengthen against all major currencies.

Sellers disrupted Friday's gains, but did not break the trend. To reverse it, the key pair will need to close the day below 1.1830. That said, we believe that buyers will once again try to retrace to recent highs, and only then will preparations for the ECB meeting and Christine Lagarde's press conference begin. Hourly indicators show signs of a reversal. The market is ready for price action recovery to 1.1895.

Bottom line: on Friday, the EURUSD pair closed slightly higher. Buyers were unable to hold onto gains during the rally after NFPs came out. A correction broke out on the market ahead of the long weekend in the US and Canada.

On Monday, the euro retreated in line with the correction. Nonetheless, the bullish trend remains strong. Price action retraced to the balance line (1.1869). The market is primed for a recovery to 1.1895. Buying activity could be muted due to the Labor Day holiday stateside.

Euro attempts to bounce off balance line

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