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  • EUR/USD traders await the Nonfarm Payrolls and next week’s Industrial Production.  
  • 1.1176 and 1.1412 are key levels heading into the Nonfarm Payrolls.

We are in holiday markets today and there it is highly unlikely that there will be any price action until tomorrow’s Nonfarm Payrolls. The focus will be back on the Dollar and whether the jobs report in itself will be enough to balance the scales at the Federal Open Market Committee’s meeting this month,  30-31 July,  where a decision will be made as to cut interest rates so soon. The committee is willing to do so should the U.S. economy shows signs that it is slowing and vulnerable to a deteriorating global macro and/or geopolitical  backdrop. However, a 25bp cut is fully priced by OIS forwards, while a 50bp cut is 2/3 priced – Indeed, the markets have made up their minds already, probably based more so on the global and US  ISM surveys in particular which have shown that uncertainty over tariffs is weighing on investment decisions.

The Nonfarm Payrolls are a volatile reading from month to month and subject to huge revisions. However, they have been deteriorating and Tomorrow’s June nonfarm payrolls will, therefore, attract even more attention than usual ahead of the FOMC, particularly given the May number was a very weak +75k (the Jan-April average was +195k).   The markets are expecting a +160k print, but given how weak last months were, it could swing one way or the other, higher on the payback  for such a weak number last month or, should we  see another sub-100k reading, then markets will be pricing in higher chances of a  50bp rate cut on the knee-jerk reaction.  With all that being said, it is unlikely that the euro can really run away from the 2019 downtrend considering the dovishness at the ECB in the face of a weaker services quarter.  

EZ Services sector deterioration to force the ECB into submission?  

In yesterday’s ‘What’s under the hood of EUR/USD as we move into 4th July holidays/Nonfarm Payrolls?’, it was noted how  deteriorating eurozone economy and the appointment of a dovish new ECB governor,  Christine  Lagarde, should be weighing on the euro and if it were not for prospects of a new easing cycle at the Federal reserve, EUR/USD would be  below the 1.10 handle. Noting today’s Retail sales data and in further analysis of the EZ economy, it has been  evident that it is  the service sector that’s the lifeblood of the economy at the moment and what is keeping  GDP from contracting. However, today’s data should be a strong factor in the case for further downside in the euro.  Retail sales declined by 0.3% month-on-month  in May, which should make the ECB very nervous, for should the service sector continue on such a path, the ECB will have little choice but to act and the central bank has made it clear it is ready to act if necessary.  Next week will see May’s industrial production figures for the eurozone and that is going to be a major event and maybe the straw that breaks the camel’s back.  

 

EUR/USD  levels

Analysts at Commerzbank explained that initial support lies at 1.1264/13th May high, ahead of 1.1176 the 7th March high. “Above 1.1412 (last weeks high) we look for a test of the 1.1570 2019 high. Slightly longer term we target 1.1815/54 (highs from June and September 2018).”