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Euro Rebound at Risk on Rising German Unemployment- H&S Top?

Euro Rebound at Risk on Rising German Unemployment- H&S Top?

David Song, Gregory Marks,

- German Unemployment to Hold Flat After Rising for Last Three-Months

- Unemployment Reported Missed Market Forecast for Last Three Prints

Trading the News: German Unemployment Change

Germany’s Unemployment Report may threaten the short-term rebound in the EURUSD should the figure highlight a more subdued recovery in Europe’s largest economy.

What’s Expected:

Time of release: 11/28/2013 8:55 GMT, 3:55 EST

Primary Pair Impact: EURUSD

Expected: 0K

Previous: 2K

DailyFX Forecast: 0K to 2K

Why Is This Event Important:

With the European Central Bank’s (ECB) December 5 meeting quickly approaching, a further deterioration in the growth outlook may put increased pressure on the Governing Council to take more unprecedented steps, and the policy outlook may become a growing proponent to drive the Euro lower as President Mario Draghi looks to negative deposit rates.

Expectations: Bearish Argument/Scenario

Release

Expected

Actual

Private Sector Consumption (QoQ) (3Q F)

0.2%

0.1%

Industrial Production s.a. (MoM) (SEP)

0.0%

-0..9%

Retail Sales (SEP)

0.4%

-0.45

The slowdown in private sector consumption may continue to drag on the labor market as it prompts firms to scale back on hiring, and another unexpected uptick in German Unemployment may help to carve a head-and-shoulders top in the EURUSD as it heightens the threat for deflation.

Risk: Bullish Argument/Scenario

Release

Expected

Actual

IFO Business Climate (NOV)

107.7

109.3

Trade Balance (SEP)

15.4B

20.4B

Factory Orders (MoM) (SEP)

0.5%

3.3%

Nevertheless, the rise in business sentiment a long with the pickup in global trade may highlight a turning point for Germany’s labor market, and a positive development, may encourage a more bullish outlook for the single currency as it gives the ECB greater scope to retain its wait-and-see approach.

Potential Price Targets For The Release

Join DailyFX on Demand to Cover Current Trade Setups on the Euro

EUR/USD Daily

Forex_Euro_Rebound_at_Risk_on_Rising_German_Unemployment-_HS_Top_body_Picture_2.png, Euro Rebound at Risk on Rising German Unemployment- H&S Top?

Chart - Created Using FXCM Marketscope 2.0

  • Looking for Higher High or Head-and-Shoulders Top? RSI Retains Bullish Trend
  • Interim Resistance: 1.3650-60 (78.6% expansion)
  • Interim Support: 1.3290 (50.0% retracement) to 1.3300 Pivot

How To Trade This Event Risk(Video)

Bearish Euro Trade: German Unemployment Rises for Fourth Month

  • Need red, five-minute candle following the report to consider a short Euro trade
  • If the market reaction favors a bearish EURUSD trade, sell with two position
  • Set stop at the near-by swing high/reasonable distance from entry with at least 1:1 risk-to-reward
  • Move stop to cost on remaining position once initial target is met; set reasonable limit

Bullish Euro Trade: Labor Market Improves

  • Need green, five-minute candle following the release to look at a long EURUSD entry
  • Implement same setup as the bearish Euro trade, just in reverse

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)

OCT 2013

10/30/2013 8:55 GMT

0K

2K

+2

-56

October 2013 German Unemployment Change

Forex_Euro_Rebound_at_Risk_on_Rising_German_Unemployment-_HS_Top_body_Picture_1.png, Euro Rebound at Risk on Rising German Unemployment- H&S Top?

Although the October print missed flat estimates coming in at 2K, the jobless rate remained steady at 6.9% and the prior reading was revised lower by 1K. The release was good for 10 pips to the upside for EUR/USD, but momentum waned ahead of Euro Zone Consumer Confidence and US CPI prints later that day. Economists surveyed by Bloomberg had previously been predicting a 6.8% unemployment rate by 4Q 2013, but November’s survey release shows economists have revised their outlook to a year end 6.9% unemployment rate for Germany.

--- Written by David Song, Currency Analyst and Gregory Marks

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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