EUR/USD: Trading the US Unemployment Claims



US Unemployment Claims is released weekly, and measures the number of people filing for unemployment for the first time. It is considered an important measure of the health and direction of the economy. A reading which is higher than the market forecast is bearish for the dollar.

Here are all the details, and 5 possible outcomes for EUR/USD.

Published on Thursday at 13:30 GMT.

Indicator Background

Analysts closely monitor the weekly Unemployment Claims reading. Employment is highly correlated with economic growth, as an unemployed person will likely cut back on expenses and personal spending.  In turn, increased consumer spending will lead to activity and growth in other sectors of the economy.

Last week, key US releases were quite strong, with the exception of Unemployment Claims. The indicator was up sharply last month, with 361 thousand new claims.This was slightly above the estimate of 358K. The final forecast for 2012 calls for a slight increase, to 365K. Will the indicator surprise the markets and beat the forecast?

Sentiments and levels

EUR/USD staged an impressive run in December, and has risen around three cents since early December. The Santa Rally that the pair enjoyed didn’t fully materialize due to eruption of a new blame game over the fiscal cliff. Despite the rhetoric, the sides are not that far apart, and are likely to do what they always do: cut a last minute deal. If not a full deal, we could get significant improvement in the negotiations, and this will weaken the dollar. Also the many positive signs from the US certainly help the “risk on” environment – dollar selling, as seen throughout most of the post financial crisis period. In Europe, the economy is still suffering, but the debt crisis is now on hold for the holidays. We could see a resumption of drops in the new year. So, the overall sentiment remains bullish on EUR/USD towards this release.

Technical levels, from top to bottom: 1.34, 1.3290, 1.3240, 1.3180, 1.3130, and 1.3110.

5 Scenarios

  1. Within expectations: 358K to 372K: In such a case, EUR/USD is likely to rise within range, with a small chance of breaking higher.
  2. Above expectations: 350K to 357K: An unexpected lower reading can send the pair below one support level.
  3. Well above expectations: Below 350K: Strong employment numbers would be bullish for the dollar. Two or more support lines might be broken on such  an outcome.
  4. Below expectations: 372K to 379K: A poor reading could push EUR/USD higher, and one resistance line could be broken.
  5. Well below expectations: Above 379K. A sharp increase in the reading could lead to the pair breaking two or more resistance levels.

For more on the Euro, see the EUR/USD forecast.

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About

Kenny Fisher - Senior Writer

A native of Toronto, Canada, Kenneth worked for seven years in the marketing and trading departments at Bendix, a foreign exchange company in Toronto. Kenneth is also a lawyer, and has extensive experience as an editor and writer.

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