THE TAKEAWAY:German Unemployment Rate > No Jobs Lost, Rate Ticks to New Lows > EURUSD Bullish
While the rest of Europe faces a sovereign debt crisis, one that has diminished the standard of living for her citizens as unemployment rates sky rocket, the German economy looks unscathed. In fact, while some countries face an unemployment rate of 15 percent, 20 percent, or even 25 percent, the German economy just saw its unemployment rate hit a Euro-zone era all-time low, at 6.7 percent in May against a forecasted 6.8 percent rate, according to a Bloomberg News survey. When compared to all available data, the rate is not just the lowest since January 1999, but also as far back as our data goes, which is January 1991.
The unemployment rate was aided by a labor market that has proved resilient amid the decline of employment across the rest of Europe. Economists were predicting that the German economy had lost 7K jobs in May after gaining 19K jobs in April; however, no jobs were lost (or gained). When compared to other major economies, such as the United Kingdom or the United States, the German labor market looks relatively resilient; whose counterparts have unemployment rates of 8.2 percent and 8.1 percent, respectively. When compared to other Euro-zone countries, such as France, Italy, or Spain, the German labor market is that much more impressive; these countries have unemployment rates of 9.4 percent, 24.1 percent, and 8.8 percent, respectively.
EURUSD 1-minute Chart: May 30, 2012
Charts Created using Marketscope – Prepared by Christopher Vecchio
Following the release, the Euro gained across the board, most notably against the safe haven currencies, the Japanese Yen and the US Dollar. The EURJPY appreciated from 97.71 to as high as 97.94, while the EURUSD rallied from 1.2393 to as high as 1.2416, at the time this report was written.
With regards to the EURUSD, we remain bearish given the fundamental outlook for the currency, despite the excessive oversold conditions the pair faces. After setting a fresh 2012 low today at 1.2358, the pair has rebounded approximately 50-pips, setting up a Hammer candlestick on the daily chart. Typically, this price action indicates bulls closed out the session stronger than the bears, signaling a potential shift in momentum. Indeed, shorter-term charts suggest that rallies may advance as high as 1.2460/80, and it would take a significant fundamental catalyst to drive the pair back above 1.2500. As such, with two key US data releases today with quantitative easing expectations – the ADP employment report and the first quarter GDP revision – it’s very possible the EURUSD rallies up towards 1.2500 ahead of the US cash equity open.
--- Written by Christopher Vecchio, Currency Analyst
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