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Euro/dollar is on the fall. The initial reaction to the mixed Non-Farm Payrolls was a move higher, but this was limited and was followed with a slide.

The move then accelerated and EUR/USD already lost one support liine. Here are three reasons for the downfall:

  1. A bright side in the Non-Farm Payrolls report: The report included a small slide in the unemployment rate to 9%, a drop in U-6 “real unemployment rate to 16.2% and most importantly significant upside revisions to the figures released in August and September, a total of above 100K. This lowers the chances of QE3.
  2. Digestion of German economic weakness: German factory orders free-fell by over 4% while a rise was expected. Final services PMI was revised to the downside –  46.4K. This included a big drop in the German figure. It’s not only peripheral countries that are suffering. The digestion of these figures was held back until the NFP.
  3. Italy struggling at the G-20 Summit: The only significant headline coming out of the G-20 summit in Cannes is that Italy “asked” for  an IMF mission, putting the euro-zone’s third largest country together with Greece, Ireland and Portugal. This reflects the severity of the situation. And in Italy, there is a political mess which is very serious – not as exciting as in Greece, but far more dangerous.

EUR/USD is now plunging well below the 1.38 line and is approaching 1.3750. Minor support is at 1.3725, followed by significant support at 1.3650.

For more on the pair, see the euro to dollar forecast.

Update: EUR/USD extends falls and attacks the support line at 1.3725 after Italy’s prime minister Silvio Berlusconi announced that he rejects any IMF involvement.

Gregor Horvat has an excellent technical analysis of the euro weakness even before the NFP release.