Market Analysis

EURUSD: Rising on softer ISM data but focus shifts to the non-farm payrolls today

The Chinese slowdown was expected but today’s softer-than-expected ISM number took investors by surprise sending shockwaves through the equities and currency markets because the US seemed to be the only safe harbour to dock in the middle of the storm.

The ISM Manufacturing PMI in the US fell to 54.1 in December 2018, comparing to 59.3 registered in November and coming up short from analysts’ consensus of 57.9. It was the largest monthly drop since October 2008 and the weakest since November 2016 as growth in new orders, production and employment slowed sharply.

Looks like the US and China trade wars begin to show impact in both countries’ economies as data continues to suggest an economic decline worldwide. Nonetheless, the US government partial shutdown carries on, with a failed meeting between US President Trump and top congressional leaders, as Trump refuses to pull back from his demand for funding to build a wall, which he considers a national security matter.

Affecting the Euro is the future of a Brexit agreement that May negotiated with the European Union (EU), which is hanging in the balance in the run-up to a parliamentary vote due in the week beginning January 14, and requests for a second referendum, which May has consistently rejected are growing. However, according to Brexit minister Stephen Barclay, a second referendum on UK’s attachment of the European Union would only worsen divisions among the British people. Nonetheless, the Brexit is scheduled for March 29.

Since the beginning of 2019 until last Thursday close, the EURUSD remains negative with a loss of over 0.6% and since the start of January remains below water with a loss of 0.6%. Nonetheless, the currency pair on the weekly stance is depreciating 0.41% and on the daily time-frame closed in the green with 0.44% gain. Furthermore, the EURUSD remains in a recovery phase since late December 2018.

On Thursday session, the currency pair initially fell but found enough buying pressure near  1.1300 handle to trim all of its losses and closed near the high of the day, however, managed to close within Wednesday range, which suggests being slightly on the bullish side of neutral.

The stochastic is showing strong bearish momentum and is crossing below the 50 midline.

The currency pair remains within a trading range since late November 2018, unable to break under 1.1300 and holding on top of 1.1500. The EURUSD tried to break above the 1.1500 handle on Wednesday but without any success, in fact, reversed and dived sharply into the 1.1300 handle. Nevertheless, yesterday the currency pair managed to begin an upward correction although is facing a strong resistance on the confluence of the 50 Fibonacci retracement at 1.1402 and the 10-day moving average at 1.1410.


EUR/USD Daily Candlestick Chart

EUR/USD Daily Candlestick Chart


Market Events to Watch: 

January 04 at 10:00 GMT (07:45 ET): The Eurostat is scheduled to release the preliminary consumer price index (CPI) year-on-year for December 2018, which is estimated by market analysts to decrease to 1.8% comparing to 1.9% registered in the previous period. The CPI is a significant way to measure changes in purchasing trends and inflation in the Euro Zone. Generally, a high reading anticipates a hawkish attitude, which will be positive for the EUR, while a low reading is seen as negative.

January 04 at 10:00 GMT (07:45 ET): The Eurostat is scheduled to release the producer price index (PPI) for December 2018, which is forecasted by marker analysts to drop to 4.1% comparing to 4.9% registered in the previous month. Generally, a high reading is seen positive for the EUR, while a low reading is seen as negative.

January 04 at 13:30 GMT (08:30 ET): The US Department of Labour is scheduled to release the nonfarm payrolls for December 2018, which are estimated by marker analysts to increase to 178K from 155K registered in the previous month. Generally, a high reading is seen as positive for the USD, while a low reading is seen as negative, although previous months reviews and the unemployment rate are as relevant as the headline figure, and therefore market’s reaction depends on how the market assets them all.

January 04 at 13:30 GMT (08:30 ET): The US Department of Labour is scheduled to release the unemployment rate for December 2018, which is forecast by marker analysts to come in at 3.7% unchanged compared to the previous month. A decrease of the figure is seen as positive for the USD, while an increase is seen as negative, although by itself, the number can’t determinate the markets move as it depends on the headline reading, the nonfarm payroll.

January 04 at 15:15 GMT (10:15 ET): The Federal Reserve (Fed) Governor Jerome H. Powell is scheduled to testify on the economic outlook and recent monetary policy actions before the Joint Economic Committee, in Washington DC. The testimony is in two parts; the first is a prepared statement, then the committee conducts a question and answers session. The Q&A portion of the testimony can see heavy market volatility for the duration.


Written by Hugo O’Neill, External Analyst


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