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Trading German Unemployment and Implications for EURUSD

Trading German Unemployment and Implications for EURUSD

David Song, Strategist

Trading the News: German Unemployment Change

A third consecutive decline in German Unemployment may heighten the appeal of the Euro as it dampens the scope of seeing the European Central Bank (ECB) further embark on its easing cycle.

What’s Expected:

Time of release: 08/29/20137:55 GMT, 3:55 EDT

Primary Pair Impact: EURUSD

Expected: -5K

Previous: -7K

DailyFX Forecast:-10K to 5K

Why Is This Event Important:

Indeed, the ongoing improvement in Europe’s largest economy may prompt the ECB to retain its current policy at the September 5 meeting, and President Mario Draghi may sound more upbeat this time around as the central bank retains its call of seeing the euro-area returning to growth later this year.

Expectations: Bullish Argument/Scenario

Release

Expected

Actual

IFO – Business Climate (AUG)

107.0

107.5

Gross Domestic Product s.a. (QoQ) (2Q P)

0.6%

0.7%

Trade Balance (JUN)

15.0B

16.9B

The labor report may show a further decline in Germany unemployment amid the rise in business confidence along with the pickup in global trade, and a marked improvement in the labor market may produce fresh monthly highs in the EURUSD as market participants scale back bets of seeing another rate cut from the ECB.

Risk: Bearish Argument/Scenario

Release

Expected

Actual

Retail Sales (MoM) (JUN)

0.2%

-1.5%

Labor Costs s.a. (QoQ) (1Q)

--

1.1%

Nevertheless, the persistent slack in the real economy may continue to drag on hiring, and an unexpected rise in unemployment may produce a sharp selloff in the Euro as it raises the risk of seeing a prolonged recession in the monetary union.

How To Trade This Event Risk(Video)

Bullish EUR Trade: German Unemployment contracts 5K or greater

  • Need green, five-minute candle after the print to consider a long EURUSD position
  • If the reaction favors a buy, establish long entry with two position
  • Place stop at the near-by swing low/reasonable distance from cost; at least 1:1 risk-to-reward
  • Set stop to breakeven on remaining position once initial target is met; set reasonable limit

Bearish EUR Trade: Labor data misses market expectations

  • Need red, five-minute candle following the report to look at a short EURUSD trade
  • Implement same game plan as the bearish USD trade, just in opposite direction

Potential Price Targets For The Release

Forex_Trading_German_Unemployment_and_Implications_for_EURUSD_body_ScreenShot031.png, Trading German Unemployment and Implications for EURUSD
  • Continues to carve near-term top; looking for close below 1.3340 (61.8% Fib retracement)
  • Bearish divergence in the Relative Strength Index highlights further weakness
  • Soft resistance/pivot: 1.3450; string of Fib retracements at 1.3500-10
  • Interim support: 1.3320 (50.0% retracement) to 1.3240 (78.6% expansion)

Impact that the change in German Unemployment has had on EUR during the last month

Period

Data Released

Estimate

Actual

Pips Change

(1 Hour post event )

Pips Change

(End of Day post event)

JUL 2013

07/31/2013 7:55 GMT

0K

-7K

+12

+24

July 2013German Unemployment Change

Forex_Trading_German_Unemployment_and_Implications_for_EURUSD_body_ScreenShot021.png, Trading German Unemployment and Implications for EURUSD

Unemployment in Germany slipped another 7K following the 13K decline in June, while the jobless rate held steady at 6.8% for the third consecutive month in July. The unexpected improvement in the labor market propped up the Euro, with the EURUSD climbing above the 1.3280 region, and the single currency continued to gain ground throughout the day as the pair closed at 1.3300.

--- Written by David Song, Currency Analyst

To contact David, e-mail dsong@dailyfx.com. Follow me on Twitter at @DavidJSong.

To be added to David's e-mail distribution list, please follow this link.

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