Dollar stays firm against against European majors after yesterday’s ECB triggered selloff in euro. Focus will turn to employment data from US today. Markets are expecting the non-farm payroll report to show 216k growth in August while unemployment rate is expected to fall to 6.1%. The leading indicators to NFP were generally neutral. ADP employment showed 204k growth versus expectation of 218k. Employment component of ISM manufacturing dropped slightly from 58.2 to 58.1. Employment component of ISM non-manufacturing rose from 56.0 to 57.1. The four week moving average of initial jobless claims rose from 297k to 302k. So, overall, the leading indicators suggested that US would likely have another month of solid job growth, but that wouldn’t been very spectacular.
Yesterday, ECB President Mario Draghi shocked the market and announced that the ECB would start purchasing asset-backed securities and covered bonds in October. The act aims to increase liquidity to the financial system and stimulate growth. The ECB announced to cut the main refi rate by -10 bps to 0.15%. Correspondingly, it also lowered the bank overnight deposit rate to -0.2% and the marginal lending rate to 0.3%. The euro slumped against the Us dollar and the pound as the so-called QE is eventually embarked. More in ECB Announces QE – ABS and Covered Bond Purchases.
EUR/USD took out 1.3 handle overnight on steep selloff and reaches as low as 1.2919 so far. The pair is now close to 161.8% projection of 1.3993 to 1.3502 from 1.3700 at 1.2906 and is in deep oversold condition. Considering also that we’re now close to the end of the week, another fall today, even in case of a strong NFP number, would likely be exhaustive. Hence, short term traders might just close out EUR/USD short any time in European session and take the profits first. Medium term traders might just look through the NFP even to next week to add EUR/USD short on recovery.
Elsewhere, Germany industrial production, Eurozone GDP and Swiss foreign currency reserves will be featured in European session. Canada will release employment data too, as well as Ivey PMI.
Daily Pivots: (S1) 0.9219; (P) 0.9273; (R1) 0.9373; More….
USD/CHF rises to as high as 0.9333 so far and the break of upper channel resistance suggests acceleration. Intraday bias remains on the upside for the moment. Current rally should target 161.8% projection of 0.8702 to 0.9036 from 0.8855 at 0.9395 next. On the downside, below 0.9294 minor support will turn bias neutral and bring consolidation first. But retreat should be contained above 0.9175 support and bring another rally.
In the bigger picture, price actions from 0.9971 are viewed as a correction pattern. The break of 0.9156 resistance confirmed medium term reversal. That is, such correction could have completed. Further rise should be seen back to retest 0.9971 high next. On the downside, break of 0.9114 support is needed to be the first signal of reversal. Otherwise, outlook will stay bullish in case of pull back.
Leading Index Jul P
German Industrial Production M/M Jul
Foreign Currency Reserves Aug
Eurozone GDP Q/Q Q2 P
Change in Non-farm Payrolls Aug
Unemployment Rate Aug
Net Change in Employment Aug
Unemployment Rate Aug
Ivey PMI s.a. Aug