A Rise In U.S, Non-Farm Payrolls Could Support A Bearish Dollar Outlook

The U.S. economy is predicted to have lost another 365,000 jobs in June, up from 345,000 the month prior. Despite the decline it would mark the second month below 500,000 after six straight months above the lofty figure.

[B]Fundamental Outlook[/B][B][/B]

The U.S. economy is predicted to have lost another 365,000 jobs in June, up from 345,000 the month prior. Despite the decline it would mark the second month below 500,000 after six straight months above the lofty figure. Early indicators are pointing toward further improvement in the labor market as the Challenger job cut report showed a 9.0% decline in layoffs which was the first reduction since February 2008. Additionally, the employment component of the ISM manufacturing gauge rose to 40.7 from 34.3, which was the highest since September 2008. However, we did see the ADP employment report miss expectations of -394K with a print of -473. Nevertheless, the gauge did improve from the -485K the prior month which was revised lower from its initial reading of -532K. Another month of fewer job losses would make a compelling argument that the U.S. economy is on the verge of recovering. The increase in optimism could spark risk appetite and in turn lead to the EUR/USD trading higher. This would validate the building bullish technical outlook which is looking for a retrace back to 1.4340 with potential to 1.4720. However, we can’t rule out dollar bullish sentiment if the report is exceptionally strong as traders may start to bet that the U.S. economy will be the first to emerge as they did last month. The strongest case for a bullish dollar reaction will be if we see a sizable decline from May figures which would dim the outlook for a recovery. The following flight to safety would justify the prior bearish technical outlook for the EUR/USD.

      [B]Technical Outlook[/B]            

      [B]Euro / US Dollar                    Daily Bars[/B]            

      Prepared by Jamie Saettele            

I wrote yesterday that “trading above 1.4140 shifts odds in favor of the bullish count in which the decline from 1.4340 is an A-B-C correction that will be fully retraced. Under this count, the rally from 1.3750 is wave 5 of an ending diagonal from 1.2454. The rally from 1.3750 itself is unfolding as a diagonal and price must stay above 1.3887 in order to keep this count valid. The bearish count is not completely eliminated as no rules have been broken (see the alternate numbering) but its prospects are damaged given the time taken up by what would be wave ii. From a trading perspective, ST may want to short here, targeting support at 1.3900.” The EURUSD dropped to 1.4000 and has surpassed yesterday’s high. Price ideally remains above 1.40 on its way to a break above 1.4340 and eventually 1.4720.

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[I]To discuss this report contact John Rivera, Currency Analyst: <[email protected]>[/I]