Although the past trading week provided us with some crazy moves, it did a lot more than that. The EUR/USD formed a nice range, a break of which should produce a sustained move either up or down. The pair closed the week at 1.3003, practically unchanged, down only 8 Pips from the previous week’s close. Please look at the 4 Hour chart below.
The yellow rectangle marks the range the Euro has settled into the past 2 weeks. The low of the range is at 1.2954, the high is at 1.3160. A sustained break of either the low or the high should provide us with a nice directional move. However, taking into account the fact that the EUR/USD has been in a sustained downtrend since the start of February, a break to the downside is a lot more likely. Let’s look at the bigger picture on the Daily Chart.
NFP Surprises to the Upside, Risk Assets Selloff
The chart above shows that the single currency has been in a sustained downtrend since marking a swing high of 1.3710 on February 1. It reached a low of 1.2954 last week, on the back of the important US jobs report. The report came in lot better than expected, printing a gain of +236,000 jobs versus an expected gain of +162,000. The revisions lowered last month’s gain of +157,000 to +119,000. But even the unemployment rate surprised to the upside, moving down more than expected. It came in at 7.7% vs expected 7.9%.
The positive news paradoxically caused risk assets (including the Euro) to initially sell off, although they recovered later in the day. This was because the report increased the odds that the Federal Reserve may increase rates sooner than expected. On the interest rates futures markets, traders increased their bets that the Fed will hike rates in December 2014, putting the likelihood at as high as 49%, up from 42% before the NFP data. The January 2015 contract put the rate hike at a 54 % probability.
US enters DST and Important News to Look Out for Next Week
The US entered Daylight Savings Time on Sunday, clocks in the States moved forward by 1 hour, so keep that in mind for important US releases if you live outside America. Europe doesn’t enter DST for 3 more weeks, so if you live in the States economic releases in Europe will be coming in 1 hour earlier for you.
Important news next week include the U.K. Manufacturing Production on Tuesday at 10:30 Central European Time (15:30 New York time). Wednesday brings us the USA Retail Sales at 13:30 CET (8:30 AM NY) and the Reserve Bank of New Zealand interest rate decision at 21:00 CET (16:00 NY time). This will be followed by the RBNZ Governor Wheeler testimony on the Monetary Policy Statement before the Parliament’s Finance and Expenditure Committee.
Thursday in early Asian trading at 1:30 AM CET (8:30 PM NY) comes in the Aussie Jobs Report, followed by the Swiss National Bank interest rate decision at 9:30 AM CET (4:30 AM NY). The last important news release for Thursday is the US PPI at 13:30 CET (8:30 AM NY).
To round off the week on Friday we have the US CPI at 13:30 CET, followed by the Preliminary University of Michigan Consumer Sentiment Survey at 14:55 CET (9:55 AM NY time).
Levels to Watch Next Week on the EUR/USD
As we mentioned above, the single currency has formed a nice trading range between 1.2954 and 1.3160. To the downside, the 1.2954 to 1.3000 area will provide support.
A sustained break below this area may extend the Euro’s losses to 1.2875, a swing low the Euro marked on 2 separate occasions in November and December of 2012. Further down we find the 1.2800 level, followed by 1.2660. This was a swing low the single currency marked on November 13 last year, as well as a starting point for the most recent upmove in the EUR/USD to 1.3710.
To the upside, a break above the 1.3125 – 1.3160 area may extend gains in the pair to 1.3255. The 1.3255 – 1.3307 area will provide resistance, a break above may see the Euro gaining to 1.3400. Further up, the swing high at 1.3519 will provide resistance. We round up the levels with the 1.3710 level, a swing high of the most recent EUR/USD uptrend.
I hope my weekly preview will be useful for you. Please leave comments or suggestions if this is something you would like to read on a regular basis. Safe trading next week!