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James Hyerczyk

Weekly Analysis and Recommendations:  Technical and mixed fundamental factors figured largely in last week’s slightly lower close by the EUR/USD. The week began with the Forex pair under pressure on Fed member talk of an interest rate hike in September. By mid-week, however, the focus was clearly on U.S. labor data.

The low for the week was reached at 1.0847 on Wednesday. Technically oversold conditions and position-squaring slightly above the recent bottom at 1.0808 and a few days ahead of the U.S. Non-Farm Payrolls report likely encouraged the move. The low for the week lined up with a weak ADP private sector jobs report. The report caused investors to downgrade their assessment of the current conditions in the U.S. labor market. According to ADP, its estimate of private sector payrolls in the U.S. rose by 85,000 in July. This was well below forecasts of a 210,000 gain and down from an increase of 237,000 in June. The ADP data raised doubts about the timing of a Fed interest rate hike. These doubts encouraged short sellers to lighten up their positions ahead of Friday’s U.S. Non-Farm Payrolls report.

Friday’s jobs report proved to be frustrating for most investors because it produced a two-sided market. The report showed that U.S. employers added 215,000 new jobs to the economy in July. This was below the consensus estimate of 223,000, but within the range. Initially, the news was met with heavy selling pressure as fundamental traders quickly added to their bearish positions. When it became clear that the low for the week at 1.0808 was not going to be taken out, these fresh shorts quickly covered, leading to a strong finish. Essentially the price action became a “sell the rumor, buy the fact” situation. Like I said earlier, the late rally may have had nothing to do with the report, but was likely trader reaction to a technically oversold market.

Position-squaring moves are often difficult for a small speculator to understand because they tend to trade “all or nothing”. Large traders, however, commit a larger percentage of their capital to the long-term term trend of the market then make adjustments by adding or subtracting positions as the news and the price action dictates. In this case, the news may have been bearish, but the price action suggested the selling pressure was not as strong as expected. This led to the late session rebound.

Prior to the release of the report, about 47 percent of investors were looking for a September rate hike by the Fed. After the report, the number had moved up to 55 percent. Although the number rose, it was likely below expectations which created enough doubt to fuel the short-covering rally. By comparison, the figure shows 100 percent of investors expect a rate hike by December. The number is expected to change between now and the mid-September Fed meeting. In between, traders will be focusing on fresh U.S. employment and inflation data.

A couple of Fed speakers could cause some volatility on Monday if they specifically address the timing of the next rate hike. For the most part, however, they are likely to say that their decisions will be data dependent – namely the strength of the labor market. In other words, they are likely to be doing the same thing that we are doing, waiting for the data then reacting.

If you are a long-term investor then take your time and continue to add to short positions because it looks as if rates are going to go higher. Stay with the one-hundred percenters. If you are a short-term speculator then you will have to be willing to trade both sides of the market until the next piece of bearish data is presented.

FxEmpire provides in-depth analysis for each currency and commodity we review. Fundamental analysis is provided in three components. We provide a detailed monthly analysis and forecast at the beginning of each month. Then we provide more recent analysis and information in our weekly reports.

 

Weekly EUR/USD

Reports to Watch This Week:

 

         Date                  Time           Curr                             Event                                                                           Forecast Previous

 

Mon Aug 10

 7:15am ET

USD

 

FOMC Member Fischer Speaks

         
 

9:00am ET

USD

 

FOMC Member Lockhart Speaks

         
 

12:25pm ET

USD

 

FOMC Member Lockhart Speaks

         

Tue Aug 11

5:00am ET

EUR

 

German ZEW Economic Sentiment

   

31.1

29.7

 
   

EUR

 

ZEW Economic Sentiment

   

43.9

42.7

 
 

8:30am ET

USD

 

Prelim Nonfarm Productivity q/q

   

1.6%

-3.1%

 
   

USD

 

Prelim Unit Labor Costs q/q

   

-0.1%

6.7%

 
 

11th-13th

USD

 

Mortgage Delinquencies

     

5.54%

 

Wed Aug 12

10:00am ET

USD

 

JOLTS Job Openings

   

5.42M

5.36M

 
 

10:30am ET

USD

 

Crude Oil Inventories

     

-4.4M

 

Thu Aug 13

7:30am ET

EUR

 

ECB Monetary Policy Meeting Accounts

         
 

8:30am ET

USD

 

Core Retail Sales m/m

   

0.5%

-0.1%

 
   

USD

 

Retail Sales m/m

   

0.5%

-0.3%

 
   

USD

 

Unemployment Claims

   

272K

270K

 
   

USD

 

Import Prices m/m

   

-1.0%

-0.1%

 

Fri Aug 14

2:00am ET

EUR

 

German Prelim GDP q/q

   

0.5%

0.3%

 
 

5:00am ET

EUR

 

Final CPI y/y

   

0.2%

0.2%

 
   

EUR

 

Flash GDP q/q

   

0.4%

0.4%

 
 

8:30am ET

USD

 

PPI m/m

   

0.1%

0.4%

 
   

USD

 

Core PPI m/m

   

0.1%

0.3%

 
 

9:15am ET

USD

 

Capacity Utilization Rate

   

78.0%

78.4%

 
   

USD

 

Industrial Production m/m

   

0.3%

0.3%

 
 

10:00am ET

USD

 

Prelim University of Michigan Consumer Sentiment

   

93.5

93.1

 
                   

 

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