The euro-dollar pair made another attempt to leave the price range of 1.0970-1.1090 today, in which it has been trading since the beginning of November. Last week, the bears tested the lower boundary of this band, while the bulls seized the initiative this week and sent the price to the area of the 11th figure. Today’s attempt also failed – the bullish momentum faded and the pair retreated. But at the same time, it is worth recognizing that EUR/USD buyers are clearly taking advantage of the current situation: the European currency feels indirect support from the European Central Bank (which, according to rumors, is ready to adhere to a wait-and-see attitude), while the dollar is actively losing its position against the background of Donald Trump’s belligerent mood and disappointing statistics. In addition, a stream of positive news regarding Brexit’s prospects also provides indirect support to the EUR/USD pair. All this makes it possible for buyers to test multi-week highs based on a trend reversal.
However, it is too early to talk about a trend reversal. Correctional growth of the pair is now mainly due to the dollar’s weakness than the strengthening of the euro. For the US currency, the “black bar” has come – both from the side of the external fundamental background, and from the side of internal statistics. Following the release of the extremely weak ISM manufacturing index, a weak report was released today from the analytical agency ADP, after which the dollar index continued to decline. If you believe the specialists of Automatic Data Processing agency, the US private sector created only 67 thousand jobs in November. Such a low result was the worst in the last five months, since this indicator reached 41 thousand in May – while Nonfarm was at 72 thousand. Last month’s results were also revised downward. The situation is even worse in the manufacturing sector – job losses have been recorded here (-18 thousand jobs).
It is worth recalling that on the eve of the May reports, the ADP report likewise alerted traders, foreshadowing the weak Nonfarm. As it turned out later, the agency’s specialists confirmed their reputation: official figures came out worse than forecasts, causing concern not only among experts, but also among Federal Reserve members. Today the situation is repeating, only now the rates are slightly higher: if Friday’s data confirms the weakening labor market, this will be a serious argument in favor of lowering the interest rate at the beginning of next year.
The ISM manufacturing index is also worth mentioning here: the industrial activity index in the US fell to 48.1 points, contrary to analysts’ forecasts, who expected its growth in November. The ISM composite index for the non-manufacturing sector also came out in the red zone, not reaching forecast values: instead of rising to 54.5, it fell to 53.9 points. And although in this case the decline is low, this fact also put pressure on the greenback in the context of other events. The situation was slightly mitigated by a fairly strong employment component in the ISM report.
Despite such a gloomy fundamental background for the dollar, the EUR/USD pair could not gain a foothold in the 11th figure today. After reaching the daily price peak (1.1116), the pair attracted sellers, after which the price returned to the range indicated above. On the one hand, this indicates the uncertain positions of the EUR/USD bulls. On the other hand, such a rapid rise in prices (1.0980 last week and 1.1116 today) indicates the vulnerability of the dollar, and therefore the riskiness of short positions.
In general, it can now be assumed with great certainty that official data on Friday will also disappoint the market, although a consensus forecast suggests the opposite. According to most analysts, the figure will reach 189 thousand. In other words, now the EUR/USD pair is at a crossroads: either the bulls will continue to correct on Friday, or the pair will return to the bottom of the 10th figure again, followed by a test of the lower boundary of the range of 1.0970-1.0190. But it is worth noting here that if official data on the labor market come out even better than expected, the pair is unlikely to consolidate below 1.0970. Yes, the impulse response will be bearish, but the downward movement will be limited, since the US currency is now under the yoke of its own problems – primarily in view of the uncertainties regarding US-China trade negotiations.
Thus, at the moment it is advisable for the pair to take a wait-and-see attitude. Buyers of EUR/USD are still not confident in their abilities, while the dollar looks too vulnerable – not only when paired with the euro, but throughout the entire market.
*The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade.