EURUSD squeezed higher into the two key central bank meetings this week until we saw yesterday’s climactic reversal. But so far we’ve seen zero follow-through. Should the EURUSD bears be worried?
It’s too early to tell, but those (including myself) who were looking for yesterday’s reversal to take hold are finding themselves sitting rather uncomfortably as the US employment report approaches this afternoon. US equities have entirely unwound the entire sell-off since the ECB meeting yesterday and EURUSD has put on a rally to key resistance. The US employment report at 1230 GMT and the ISM non-manufacturing to follow at 1400 GMT will be the moment of truth, of course, and below we have a look at the key levels that may determine the fate of EURUSD next week.
Chart: EURUSD
So far, EURUSD has only squeezed into the zone between the daily and weekly pivot (1.2240/1.2250 respectively), which is a tactical resistance level of note. I still prefer for the pair to head lower again, but conviction has eased down more than a notch or two when I look across asset classes today (bonds selling off heavily and equities unwinding the entire sell-off). If EURUSD rallies above 1.2250 after the US data and maintains the break,, and particularly if we see a daily close near or above 1.2300, it would look to me like the short term bearish case may be lost for now. A close above these levels would reinvigorate the 1.2500 and even a 1.2750 scenario for the pair, even if my longer term convictions of an eventual break of 1.2000 have not suffered from this week’s events. On the other hand, a move back below 1.2200/1.2185 by the end of the day is more comforting for the bearish case.
Stay tuned and stay careful out there.
John J Hardy,
SAXO BANK