A Bearish EURUSD Headed for Q4

A Bearish EURUSD Headed for Q4

By: James Ansher | Where To Trade | On:29-09-2014 11:13
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Key Highlights

  • Bearish outlook for the Eurozone Persists
  • Dollar strengthens at the end of the third quarter 2014
  • Important ECB interest rate decision on Thursday
  • Important US employment situation report to be released on Friday

As we come to the close of the third quarter of 2014, the dollar has been strengthening against the Euro. The market ignored the flat Durable Goods Orders at 57.9 that had not changed since the previous month and continued on its bullish streak despite missing the expected figure of 58.

The GDP figure met expectations at 4.6 and further strengthening the USD bullishness this drove the pair even lower on Friday. This positive economic news from the US coupled with a very bearish outlook for the Eurozone saw the EURUSD fall from 1.284 at the opening of last week to close at 1.2680.

Looking Ahead

This will be a busy week for the EURUSD pair. As the fourth quarter begins, we will be looking at several reports to give us an indication of where the pair will be heading this quarter.

From the US the markets will be looking for a confirmation of a strengthening economy. The most eagerly awaited item from the US this week will be the Employment situation Report on Friday from the Bureau of Labor Statistics and Department of Labor. The two most sensitive items that we will be looking at will be the Non-farm payroll and the Unemployment rate.

The net change in Non-farm payrolls has been declining for the last two months where the economy printed 142K jobs from 212K jobs at the beginning of September and August respectively. However we anticipate a higher figure of 215K jobs to be released this Friday taking into consideration the resilience that the economy has shown. If the report discloses a figure that is around this expectation, the bullish sentiment on the dollar will persist this will see the EURUSD slide even lower. A significantly lower NFP change may ease the bullish pressures on the dollar. This will see the EURUSD pair either range temporarily or retrace to a medium term resistance at the 1.275 levels.

The Unemployment report has been on a steady decline from 7.9% at the end of Q1 of 2013 to 6.1% at the beginning of this month. Professional projections for this month are that there will not be any change in the unemployment rate. Taking the recent trends of a strong dollar, we will be looking to be bullish the USD on any indication of a slightly better than expected figure. However a higher unemployment rate may temporarily stun the bulls and cause some whiplash.

In order to get clues on what to expect from the official employment situation data on Friday, we will be keeping a sharp eye for the ADP report that will be released on Thursday.

From the Eurozone, the main item to be in the lookout for is the ECB interest rate decision on Thursday. At the beginning of this month the ECB cut the interest rates from 0.15% to 0.05%. This decision coupled with a weak economic outlook for the Eurozone triggered a 200pip selloff of the EURUSD. Considering the sentiments coming from Germany indicating that the Rates are low enough, the expectation this time is that there will be no change in the rates.

An important event that markets will be looking at however is Mario Draghi’s press conference later in the day about the interest rate decision. The conference will give hints as to how the ECB views the EUR and give indications of what to expect next. All EUR pairs exhibit a tendency to have higher volatility during such conferences. We are looking to get a dovish ECB sentiment from this conference.

Wrap up

The large sell off of the EURUSD has been largely due to the fundamental outlook of both currencies. If there is positive news enforcing the bullish sentiments coming from the US, we will likely see the pair slide down to trade at the 1.24 levels.

A dovish ECB and further softer news from Europe will escalate the selling. However because of a very bullish dollar, any short term bullishness from the EURUSD will likely meet very strong resistance at supply levels. A great strategy for this sort of scenario is to sell the tops at any major resistance.

James Ansher

James Ansher

When there is a will there is a trade

A successful Forex trader and expert advisor

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