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Euro Rebound to Benefit From Another Decline in German Unemployment

Euro Rebound to Benefit From Another Decline in German Unemployment

David Song, Shuyang Ren,

- Germany Unemployment to Contract for Second Consecutive Month.

- Jobless Rate to Hold at Annualized 6.7% for Six Straight Months.

For more updates, sign up for David's e-mail distribution list.

Trading the News: German Unemployment Change

Germany’s Unemployment report may generate a more meaningful rebound in the EUR/USD should the data highlight an improved outlook the euro-area’s largest economy.

What’s Expected:

EUR/USD Unemployment

Click Here for the DailyFX Calendar

Why Is This Event Important:Despite fears of a slowing recovery in the monetary union, a further decline in unemployment may keep the European Central Bank (ECB) on the sidelines throughout the remainder of 2014, and a further improvement in the economic outlook may limit the downside risks for the EUR/USD as market participants scale back bets for more non-standard measures.

Expectations: Bullish Argument/Scenario

Release

Expected

Actual

Markit Purchasing Manager Index Composite (AUG P)

54.6

54.9

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

--

0.4%

Private Consumption (1Q F)

0.6%

0.7%

Stronger consumption paired with the pickup in business outputs may generate a larger-than-expected decline in unemployment, and a positive development may encourage a more meaningful rebound in the EUR/USD as it gives the ECB greater scope to retain its current policy throughout the remainder of the year.

Risk: Bearish Argument/Scenario

Release

Expected

Actual

IFO Business Climate (AUG)

107.0

106.3

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

-0.1%

-0.2%

Trade Balance (JUN)

18.9B

16.5B

However, the ongoing decline in business sentiment along with the weakening outlook for global trade may drag on the labor market, and an unexpected rise in unemployment may trigger a bearish reaction in the EUR/USD as it fuels bets for additional monetary support.

Join DailyFX on Demand for Real-Time SSI Updates Ahead of German Unemployment!

How To Trade This Event Risk(Video)

Bullish EUR Trade: German Unemployment Declines 5K or Greater

  • Need red, green-minute candle following the print to consider a long EUR/USD position
  • If market reaction favors a long Euro trade, buy EUR/USD with two separate position
  • Set stop at the near-by swing low/reasonable distance from cost; at least 1:1 risk-to-reward
  • Move stop to entry on remaining position once initial target is met, set reasonable limit

Bullish EUR Trade: Labor Market Report Disappoints

  • Need red, five-minute candle to favor a short EUR/USD trade
  • Implement same strategy as the bullish Euro trade, just in the opposite direction

Read More:

GBP/USD Risks Larger Rebound as RSI Threatens Bearish Momentum

NZ, Canadian Dollars Rise as Corporate News-Flow Drives FX Markets

Potential Price Targets For The Release

EUR/USD Daily

EUR/USD Daily

Chart - Created Using FXCM Marketscope 2.0

  • Despite the long-term bearish RSI momentum, may see a larger rebound as the oscillator rebounds from oversold territory.
  • Interim Resistance: 1.3510 (38.2% expansion) to 1.3520 (38.2% retracement)
  • Interim Support: 1.3140 (38.2% retracement) to 1.3150 Pivot

Impact that Germany’s Unemployment report has had on EUR/USD during the last release

Period

Data Released

Estimate

Actual

Pips Change

(1 Hour post event )

Pips Change

(End of Day post event)

JUL 2014

07/31/2014 7:55 GMT

-5K

-12K

0

-3

July 2014 German Unemployment Change

EUR/USD Chart

Unemployment in German shrank by 12,000 in July, more than the average estimate for a 5,000 decline, while the jobless rate was unchanged at 6.6% as in June. However, the Euro fell against the US Dollar after the release, though the pair came back later during the North America trade. Despite the better-than-expected data, it seems as though one single good print may not be strong enough to shift the near-term outlook for the EUR/USD as it remains in a downward trend.

--- Written by David Song, Currency Analyst and Shuyang Ren

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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