EURUSD Analysis – 9th-13th July Forecast
Market Sentiment Overview
- The EUR/USD is looking vulnerable heading into next week after taking out recent lows and is now trading at levels seen two years ago.
- The euro dropped 3.1% on the weekly basis, the biggest week-on-week decline since September.
- Gains seen from the EU summit were pared as the week progressed and the ECB cut rates; an elevated expectation that additional funding assistance will be required over and above the 100b currently designated for Spain has prevailed. Spanish 10 yr yield back near pre EU summit 7% level.
- Labour Department figures revealed that payrolls had risen 80k last month following a 77k increase in May. This fell short of the projected (Bloomberg News survey) 100k jobs gain. Evidence is building that the U.S. economy is hitting another “difficult” period. The unemployment rate for June was not changed at 8.2%.
- This ongoing decline in the area of employment adds weight to a scenario where the Federal Reserve could intervene further in the economy via the so called QE3.
- The terrible payrolls numbers likewise fuelled broad based losses among commodities and equities and dollar strength.
EURUSD Daily Chart
Euro/Dollar Technical Notes
- Price has now broken strongly below the 1.2500 level we were monitoring this week. We place a heavy emphasis on these round number levels and the last break below the 1.2500 handle shows why… See the following EURUSD hour 1 chart. This is a great example of basic order flow trading and a KISS approach.
- Price is now trading at multi-year lows and the market could potentially make another run on the stops as the new week begins.
- Alternatively a short squeeze scenario may see price test the previous (pre NFP) support around 1.2360, in the first instance, to clear out any weak short hands.
- The dollar index rate increased 2.1% from the prior Friday — the biggest gain since December.
EURUSD Hour 1 Chart
Event Risk For Next Week
- The upcoming week of 9th through 13th July will see event risk releases including U.S trade balance and PPI along with the minutes from last month’s Fed meeting.
- The Fed meeting marked the introduction of additional operation twist measures and any clues regarding potential QE3 will be jumped on by market participants as the justification for a big bond-buying program gains traction.
- There is also potential for a gap lower as the market considers the ramifications of Friday’s NFP data.