By :David Scutt, Market Analyst
- US initial jobless claims will be important for markets later Thursday
- Claims have tended to decline in August and early September over recent years
- A continuation of that trend could spark an unwind in dovish US dollar and interest rate bets
- EUR/USD looks heavy on the daily with bullish momentum rolling over
Overview
Having navigated the most important corporate earnings report in history, or so at least that’s how Nvidia’s Q2 update has been portrayed in some circles, it’s now time for markets to brace for the most important US jobless claims report on record, at least until the one next week. For EUR/USD, despite a plethora of euro area data and speech from ECB chief economist Philip Lane on Thursday, it’s the US calendar that is far more likely to drive direction as we move towards the weekend.
With technicals already indicating downside risks, any signs of resilience in the claims data, which has been seen in August in recent years, could easily spark a further unwind of the bullish breakout seen this month.
Jobless claims headlines event risk
To begin with, here’s the key events from the US and Europe traders need to know about on Thursday. While the euro area calendar is busy, headlined by German inflation and readings from other member states, it’s rare for these figures to spark meaningful movement in EUR/USD unless we see an even rarer significant deviation from consensus.
Instead, with Jerome Powell telling markets last Friday that future movements in the Fed funds rate are likely to be determined by labour market data rather than inflation, it ensures there’ll be intense focus on the jobless claims report. I was joking in the introduction that this is the most important report ever, but in a week where there’s been almost no new information on the labour market, traders may treat it like it’s a massive binary event. Given there’s far more data on the US jobs market next week, however it prints may end up being extrapolated in terms of expectations.
Seasonal downside risks?
Markets look for an unchanged figure for first-time claimants of 232,000, but as show in the chart below that simply measures the weekly change in initial claims figures, August and early September have tended to see sustained falls over the past two years. The data is seasonally adjusted so I can’t pinpoint as to the reason why, or if it will continue, but you can’t deny it’s there. And we know based on the reaction in recent weeks that if we do see a decline, it may prompt a further unwind of dovish Fed pricing that has dragged US yields and dollar lower over the past month.
Source: Refinitiv
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https://www.cityindex.com/en-au/market-outlooks-2024/h2-eur-usd-outlook/
EUR/USD looks heavy
While not a bearish engulfing, Wednesday’s daily candle warns that short-term long positioning may have become a little crowded following the bullish breakout earlier this month. I’m not keen to initiate any trade right now given no setup comes across as particularly appealing, but the levels are obvious for any trader who has patience to let the price action tell them what to do.
On the topside, minor resistance is located at 1.1150 and 1.1200. On the downside, 1.1100, 1.1045 and 1.0948 are levels to note. RSI (14) has broken its former uptrend, warning of waning bullish momentum, while MACD looks like it may soon confirm the move as it too begins to roll over. As such, selling rallies is favoured in the near-term over buying dips.
– Written by David Scutt
Follow David on Twitter @scutty
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