Chart Of The Day: Euro Reversing On Reduced Rate Cut Odds

Friday’s U.S. nonfarm payrolls data revealed that jobs growth—a central cog in this economy’s longevity and a fundamental catalyst for the longest bull market on record—is back. After the release, all hell broke loose. Equities gave up all time highs, yields jumped the most since Jan. 3, and the euro rally may have ended.

The Labor Department reported Friday that the country created 224,000 jobs, blowing well past the 160,000 expectation. The unemployment rate edged higher to 3.7%, which is still very near the 50-year low. Finally, wages grew by 3.1% from the previous year, just missing the 3.2% forecast.

With that strong news, the Fed’s easing is no longer a forgone conclusion, and record highs for equity prices—fueled by cheap money—are beginning to press down on investors, who appear to consistently cheer poor economic data and bemoan signs of a healthy economy. The shift in sentiment around interest rates is also starting to boost the dollar, while weighing on the euro, as the chart shows.


The dollar jumped half-a percent against the euro, to the very bottom of an ascending channel since the May low.

Today’s German industrial production numbers, which missed expectations, may have put further pressure on the EUR/USD pair, after Friday’s slump through the 100 DMA, then the 50 DMA, after having already slipped through the 200 DMA at the beginning of the month, to below the uptrend line since May 23.

Friday’s plunge dragged the RSI below a neckline to its double top, suggesting prices may in turn be pulled down by weakening momentum. Unless the euro can recover the failed uptrend line, its trajectory is the short-term down-trending channel since June.

Trading Strategies

Conservative traders would wait before entering a long for prices to beat the 1.1414 June high and consolidate above the 200 DMA; or wait for a new low below the 1.1000 May trough, followed by evidence of resistance, for a short position.

Moderate traders may go long if the price closes above the uptrend line, or go short if the price falls below the mid-June low and demonstrates supply upon retesting the broken uptrend line.

Aggressive traders may short if the price closes below the uptrend line, reinforced with the 50 DMA. Alternatively, they could go long if the price closes above the uptrend line and the 50 DMA.

Short Trade Sample

  • Entry: 1.1235
  • Stop-Loss: 1.1250
  • Risk: 15 pips
  • Target: 1.1190 – above the June low
  • Reward: 45 pips
  • Risk-Reward Ratio: 1:3
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