Soft USD amid downside data pressure

EURUSD is remaining in an overall narrow range in the mid 1.1100s, pretty close to the 11-day peak seen yesterday at 1.1175. The latter, but most precisely the 1.1180 (confluence of more than 2-months high and the 161.8 FE from September-October tumble) is a key Resistance area  for the asset. A decisively close above it could turn the attention towards 200 DMA, at 1.1200, which is also just a breath below the 61.8 Fibonacci retracement from 4 months downleg. Support today holds at 1.1115, while the flattening of 50- and 200-day SMA suggest consolidation in the following week.

The latest rally for EURUSD was a product of Dollar weakness following an across-the-curve ebb in US Treasury yields yesterday, and recession-narrative fitting Chicago PMI data. With the Eurozone calendar quiet today, focus now fully falls on the upcoming release of the US October employment report, although distortions from the UAW strike will mark its usefulness.

Non-farm payrolls have been forecasted to rise 95k (versus the median for 89k), though constrained by a direct subtraction of 49k UAW workers, along with some additional weakness from indirect hits to GM suppliers. Hourly earnings are seen rising 0.3% versus unchanged in September, with the unemployment rate steady at 3.5%.  Also up is the October manufacturing ISM, which likely improved to 49.0 from 47.8. September, and construction spending, which is pencilled in with a 0.3% increase after edging up 0.1% previously.

The data come with risks skewed more to the downside than the upside, with the prevailing market mood apt to selling Dollars on any readings much below the consensus forecasts. EURUSD looks set to make this fourth up week out of the last five weeks, which has in large part reflected broader Euro buoyancy as the risk of a no-deal Brexit peeled away (though this spectre remains a risk further down the road). Bigger picture, a sputtering Eurozone economy and a dovish ECB should keep EURUSD’s upside potential in check.

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Andria Pichidi

Market Analyst

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