After the Draghi Effect, Lower NFP Expectations

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Once again the “Draghi” effect seems to have taken hold of the EUR. After briefly testing the support level at 1.2760 yesterday morning following the ECB monthly meeting and at the beginning of the Draghi press conference, the EUR quickly reversed form and tested highs and resistance at 1.2950.

Traders found themselves overly short and were caught in a “short squeeze”, as stop loss orders kicked in above the previous resistance level at 1.2870. The EUR continues to trade above the 1.2900 level this morning ahead of the US Non Farm Payroll announcement. During his press conference, Draghi stated that people had vastly underestimated the EUR and the amount of capital that has been invested in the EUR. Support for the single currency now rests at 1.2870, then 1.2840. Resistance shows up at 1.2950 and 1.2985.

Forex Analysis: EUR/USD Hits New 4-Month Low then Rebounds

The USD/JPY continues to trade higher, reaching the 97.20 level overnight before retracing back to the 96.30 level. JPY crosses across the board made new highs as the AUD/JPY broke the psychological 100.00 level. The move in the Japanese currency has caught the attention of billionaire investors George Soros and Bill Gross. Both gentlemen commented yesterday that the moves by the Bank of Japan could force Japanese investors to seek investments abroad and this could fuel the fall in the Japanese currency. According to Soros, once the BOJ “gets things started, the may not be able to stop it”. According to sources, Soros’s funds have earned almost $1 billion in profit since November, selling the JPY short. Gross’s comments included comments regarding the G-7’s reaction towards the BOJ move. He concluded that the G-7 will not like what Japan is doing, since the JPY move will create stronger currencies versus the JPY across the board. Resistance in USD/JPY is at 96.80 and 97.20. Support for USD/JPY is at 96.00 and 96.80.

This morning at 8:30 EST, the US Labor Department releases the March non-farm payroll and unemployment rate. Most economists expect an increase of 190,000, while the unemployment rate should remain unchanged at 7.7%. There has been concern mentioned that this number may not be as robust as expected given the disappointing ADP employment release on Wednesday. That number missed expectations and rose only 158,000 for March. This concern was also noted as a reason for the unexpected move in the EUR yesterday as traders were concerned a poor number this morning could prove harmful to the USD. Based on the currency movements yesterday and overnight, currency traders are expecting this number to disappoint.

In addition to the US job numbers, Canadian job data will be released this morning as well, and it is expected to rise 9,000 jobs in March, while the unemployment rate should remain unchanged at 7.0%. USD/CAD has had a quiet trading range overnight. Resistance for the currency pair is at 1.0160, while support shows up at 1.0120.

It is always difficult to predict this number. I would normally expect to see a higher number than expected and was looking for a number above 200,000 before the ADP number was released earlier this week. Given that information, I look for a release number of 165,000.

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About Author

Matthew Lifson is a Foreign Exchange Trader and a Market Analyst. with Cambridge Mercantile Group.

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