EUR/USD: Trading the US jobless claims March 2013


US Unemployment Claims indicator 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 bullish for the euro.

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

Published on Thursday at 12:30 GMT.

Indicator Background

Analysts closely monitor employment data, and Unemployment Claims provides them the opportunity to track the US employment picture on a weekly basis. Employment is highly correlated with economic growth, as an increase in employment will result in greater consumer confidence and an increase in consumer spending. In turn, increased consumer spending leads to further growth in the economy.

Unemployment Claims is looking sharp, as the indicator has easily beaten the estimate for the past two releases. Last week, there were 340 thousand new claims, while the estimate stood at 354K. The markets are expecting a higher figure in the upcoming release, with an estimate of 352K. Will the indicator continue on its run and beat the forecast?

Sentiments and levels

While it wasn’t Draghi that provided the next kick lower, there are two basic reasons for EUR/USD to fall. First, the weakness of the European economies is serious. Spain and Italy are not doing well. This was underscored as the Fitch ratings agency downgraded the debt of both of these countries last week. France is also in trouble, and Germany, the workhorse of Europe, is also going through some turbulence, as seen in factory orders and industrial output. The second reason is the strength of the US economy: the pace of the recovery is picking up, as seen in jobs and in the services sector PMI. And that builds on changing forex dynamics: the dollar now benefiting from positive US data, something that wasn’t that common in the “risk on / risk off” environment. So, the overall sentiment remains bearish on EUR/USD towards this release.

Technical levels, from top to bottom: 1.3170, 1.3130, 1.3100, 1.3030, 1.3000 and 1.2960.

5 Scenarios

  1. Within expectations: 346K to 358K: In such a case, EUR/USD is likely to rise within range, with a small chance of breaking higher.
  2. Above expectations: 339K to 345K: An unexpected lower reading can send the pair below one support level.
  3. Well above expectations: Below 339K: Strong employment numbers would be bullish for the dollar. Two or more support lines might be broken on such an outcome.
  4. Below expectations: 359K to 365K: A poor reading could push EUR/USD higher, and one resistance line could be broken.
  5. Well below expectations: Above 365K. A sharp increase in unemployment claims 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 Author

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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