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Forex: Euro Slide Continues as US Dollar Rallies Ahead of November NFPs

Forex: Euro Slide Continues as US Dollar Rallies Ahead of November NFPs

2012-12-07 13:05:00
Christopher Vecchio, CFA, Senior Strategist


The US Dollar has seen renewed vigor over the past few days with the Dow Jones FXCM Dollar Index (Ticker: USDOLLAR) rising to its highest level in a week, and readying for a test of 10000.00 if a few events break the right way. In fact, with risk-aversion prevalent overnight, especially among the European currencies, the US Dollar is set up for a strong day should the November labor market reading prove favorable.

The Nonfarm Payrolls report due today is the least important release of the series for the entire year thus far. At the beginning of the year, NFPs fueled speculation over what the Federal Reserve would do with its monetary policy; and in the middle of the year, NFPs was a focus point for both Democrats and Republicans alike ahead of the elections. But now, with the US economy seeing a string of better US data over the past two or three months (thus reducing speculation over the Fed) and the elections behind, the November report carries much less significance.

However, this report is interesting for one reason: what will be the impact of Hurricane Sandy? In the weeks after the storm, especially in early-November, weekly claims figures were clearly higher (weaker labor market) as a result. Will Sandy have the same impact on NFPs? Economists think so: forecasts are calling for what would be the third weakest reading of the year at +85K (June NFPs were +45K). We think the usual paradigm will play out – the better the figure, the stronger the US Dollar, especially against the Japanese Yen and Gold – but overall this figure is a crapshoot. A reading over +100K should be considered strong.

Taking a look at European credit, peripheral bond yields are slightly higher, confirming the Euro’s weakness (although the moderation in rising yields means that the Euro could start to base soon). The Italian 2-year note yield has increased to 2.033% (+2.0-bps) while the Spanish 2-year note yield has increased to 2.941% (+3.0-bps). Similarly, the Italian 10-year note yield has increased to 4.574% (+1.5-bps) while the Spanish 10-year note yield has increased to 5.472% (+13.8-bps); higher yields imply lower prices.


JPY: +0.12%

NZD: -0.12%

CAD: -0.17%





Dow Jones FXCM Dollar Index (Ticker: USDOLLAR): +0.17% (+0.05% past 5-days)


Forex_Euro_Slide_Continues_as_US_Dollar_Rallies_Ahead_of_November_NFPs_fx_news_technical_analysis_body_Picture_7.png, Forex: Euro Slide Continues as US Dollar Rallies Ahead of November NFPs

See the DailyFX Economic Calendar for a full list, timetable, and consensus forecasts for upcoming economic indicators.


Forex_Euro_Slide_Continues_as_US_Dollar_Rallies_Ahead_of_November_NFPs_fx_news_technical_analysis_body_Picture_6.png, Forex: Euro Slide Continues as US Dollar Rallies Ahead of November NFPs

EUR/USD: The pair has dropped over 200-pips the past few days, and is nearing support near 1.2880/1.2900. Momentum is clearly to the downside, but with 1H and 4H RSI oversold once again, right as the pair comes into its weekly S1 and monthly pivot, a bounce is possible before another move lower occurs. Resistance is at 1.2965 (weekly pivot, 50-EMA) and 1.3010/20. Support is 1.2800/20 (late-September/early-October swing low), 1.2655/65 (November swing low), and 1.2625 (former yearly low).

Forex_Euro_Slide_Continues_as_US_Dollar_Rallies_Ahead_of_November_NFPs_fx_news_technical_analysis_body_Picture_5.png, Forex: Euro Slide Continues as US Dollar Rallies Ahead of November NFPs

USD/JPY: No change: “More range-bound price action as the pair fights diametrically opposite fundamental pressures (US fiscal cliff and Japanese elections), thus leaving my levels and outlook at neutral to bullish now. Support comes in at 81.75, 81.15, and 80.50/70 (former November high).Resistance is 82.90/83.00 and 83.30/55.

Forex_Euro_Slide_Continues_as_US_Dollar_Rallies_Ahead_of_November_NFPs_fx_news_technical_analysis_body_Picture_4.png, Forex: Euro Slide Continues as US Dollar Rallies Ahead of November NFPs

GBP/USD: Two Dojis and a daily Outside Engulfing candle has led to further downside in the pair after setting fresh December highs on Tuesday. The declines have dragged the GBP/USD below former long-term trendline resistance at 1.6025/35 (descending trendline resistance off of the April 2011 and April 2012 highs). Nevertheless, my levels remain unchanged. Resistance comes in at 1.6125/30 (December high), 1.6170/80 (late-October highs) and 1.6300. Support is 1.6000/25 (20-EMA, 50-EMA), 1.5935/40 (100-DMA), and 1.5860/65 (200-DMA).

Forex_Euro_Slide_Continues_as_US_Dollar_Rallies_Ahead_of_November_NFPs_fx_news_technical_analysis_body_Picture_3.png, Forex: Euro Slide Continues as US Dollar Rallies Ahead of November NFPs

AUD/USD: The AUD/USD has started to poke out of its major technical pattern, though until 1.0500/15 is cleared, there’s little reason for excitement. My outlook is thus unchanged: “As the pair has traded towards its Symmetrical Triangle termination point, and appears to be making a move to the upside; when considered in the big picture, the current pause witnessed the past year or so may be viewed as a consolidation. Support is at 1.0435/45 (held today, weekly R1, trendline support off of the June 1 and October 23 lows) and 1.0235/80. Resistance is 1.0475/90 (November high) and 1.0500/15.” Note: this is a weekly chart to highlight how close the AUD/USD to a potential breakout.

Forex_Euro_Slide_Continues_as_US_Dollar_Rallies_Ahead_of_November_NFPs_fx_news_technical_analysis_body_Picture_2.png, Forex: Euro Slide Continues as US Dollar Rallies Ahead of November NFPs

S&P 500: No change: “Is the uptrend over? Although the rally off of the 61.8 Fibonacci retracement (June 2012 low to September 2012 high) carried the S&P 500 back into a confluence of resistance at 1400/10 (20-EMA, 50-EMA, 100-EMA), the measured move off of the low suggested a top at 1425 given the 61.8 Fibonacci extension off of the November 16 low, the November 23 high, and the November 28 low extension. Support comes in at 1387 (200-DMA) and 1345/50 (November low). A move higher eyes 1425, 1450, and 1460.”

Forex_Euro_Slide_Continues_as_US_Dollar_Rallies_Ahead_of_November_NFPs_fx_news_technical_analysis_body_Picture_1.png, Forex: Euro Slide Continues as US Dollar Rallies Ahead of November NFPs

GOLD: No change: “Gold has fallen back off of its November and December highs near 1735, mainly on progress over the US fiscal cliff and demand for US Dollars amid the need to diversify away from the Japanese Yen. I still expect the 1700 area to be defended vigorously on declines, and will continue to look to get long as low as 1675. Resistance is 1735, 1755/58 and 1785/1805. Support is 1700 (breaking now), 1690/95 (100-DMA, November low), and 1660/65 (200-DMA).”

--- Written by Christopher Vecchio, Currency Analyst

To contact Christopher Vecchio, e-mail cvecchio@dailyfx.com

Follow him on Twitter at @CVecchioFX

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