Technical Analysis

Euro Rebounds After Sharp Losses; NFPs Up Next

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    After taking a nasty spill on Thursday, the euro is in positive territory today. In the European session, is trading at 0.9984, up 0.40%.

    Euro Slides As Risk Appetite Slides

    Thursday was a day to file away and move on for the euro, as EUR/USD tumbled 1.07%. The euro is under pressure from a high-flying US dollar and is having trouble staying above the symbolic parity line. A combination of solid US numbers, weak eurozone data, and lower risk sentiment sent the euro sharply lower.

    dipped to 49.1, down from 49.3 in July. This marked a second straight contraction and was the lowest level since May 2020, the start of the COVID pandemic. It was a similar story for the eurozone , which dropped from 49.8 to 49.6, a 26-month low. The manufacturing sector continues to struggle with supply chain disruptions and a shortage of workers, and high and an uncertain economic outlook are only exacerbating matters.

    In the US, the held steady at 52.8, showing modest expansion. The labor market remains strong, with dropping to 232k, down from 237k a week earlier and much better than the consensus of 248k.

    Adding to the euro’s woes is the uncertainty over European energy supplies from Russia. Russia has shut down Nord Stream 1 pipeline for three days for maintenance, but Germany has charged that the shutdown is politically motivated and that the pipeline is “fully operational”.

    Nord Stream is supposed to come back online on Saturday. Even if Moscow does restore service, this episode reminds us of Europe’s energy dependence on an unreliable Russia. Germany has dramatically reduced its dependence on Russian gas, from 55% in February to just 26%, but a cutoff from Moscow would result in a shortage this winter.

    The week wraps up with the August report. The consensus is for a strong gain of 300k after the unexpected massive gain of 528k in July. The report could well be a market-mover for the US dollar.

    The markets are finally listening to the Fed’s hawkish message, and a strong reading will raise expectations of a 0.75% hike in September and likely push the higher. Conversely, a weak report would complicate the Fed’s plans and raise the likelihood of a 0.50% hike, which could result in the dollar losing ground after the NFP release.

    EUR/USD Technical View

    EUR/USD is testing resistance at 0.9985. Above, there is resistance at 1.0068
    There is support at 0.9880 and 0.9797

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