Bears add ahead of US Nonfarm Payrolls report

• The US dollar resumed its advance after data showed the US economy remains healthy.
• Upcoming European Central Bank and Federal Reserve meetings are fueling a cautious mood.
• EUR/USD is nearing a bear breakout point after flirting with year-to-date highs around 1.1200.

The EUR/USD pair failed to conquer the 1.1200 threshold and, after flirting with the level earlier in the week, entered a downward corrective spiral that saw the pair end the week not far above the low of 1, 1053.

The US dollar reclaims its crown

The US dollar remained under pressure until Wednesday, when sour market sentiment boosted demand, fueled later by upbeat macroeconomic numbers. On Thursday, the United States (US) reported that annualized gross domestic product (GDP) growth for the second quarter was 3 percent, higher than the previously estimated 2.8 percent. Additionally, jobless claims rose less than expected in the week ending August, coming in at 231K. Finally, the US released the Price Index for Personal Consumption Expenditures (PCE) for July on Friday, which was steady at 2.5% from last year, slightly better than the 2.6% expected. On a monthly basis, the PCE Price Index rose 0.2%, in line with expectations. The annual core PCE price index rose 2.6 percent, slightly better than the 2.7 percent expected but equal to June’s result.

The numbers not only matched expectations, but had no impact on speculation about how much the Federal Reserve (Fed) would cut interest rates when it meets in September. The numbers do not shed light on whether US policymakers will opt for a 25 or 50 basis point (bps) cut, which is the only pending uncertainty among speculative interest.

A resilient US economy may not come as a surprise, but it is indeed welcome news. The fact that speculative interest has already priced in a rate cut, along with upbeat macroeconomic results, fueled demand for the USD at the end of the week.

Eurozone inflation supports the ECB’s path

Things also improved in the eurozone as Germany released preliminary estimates of August inflation data, which surprised investors by falling more than expected. The consumer price index (CPI) rose 1.9% from the previous month, below the 2.1% expected, while the CPI fell 0.1% from the previous month. The Harmonized Index of Consumer Prices (HICP) rose 2.0% in the year to August and fell 0.2% from July.

However, the Eurozone HICP met expectations, rising 2.2% in August, down from 2.6% in July. Monthly growth came in at 0.2%, higher than the previous 0.0%. Finally, the core annual HICP came in at 2.8%, meeting estimates.

The figures support the case for another European Central Bank (ECB) interest rate cut in September, something that speculative interest has already priced in.

Data release is ramping up

Next week will bring some relevant macroeconomic figures ahead of central bank announcements. The ECB will decide on monetary policy on September 12, while the Federal Reserve Fed will do the same on September 18.

The US calendar on Tuesday will feature the ISM manufacturing purchasing managers’ index (PMI) for August, with the index estimated at 47.8, improving from 46.8 posted in July. Services PMI will be released on Thursday and is expected at 51.5.

The country will also release employment figures throughout the week, including JOLTS job offers, the ADP Employment Change report and Challenger Job Cuts, ahead of August’s non-farm payrolls (NFP) report on Friday. The country is currently expected to have added 163,000 new jobs in the month after gaining 114,000 in July. The unemployment rate is forecast at 4.2%, down from the previous 4.3%.

The Eurozone will also offer some interesting numbers as it releases July producer price index (PPI) figures, retail sales for the same month and an update on gross domestic product (GDP). As for Germany, the focus will be on factory orders and industrial production for July.

EUR/USD Technical Outlook

The corrective decline could continue if EUR/USD extends its slide below the 1.1050 region. The weekly chart shows the pair struggling to hold above a slightly bearish 200 simple moving average (SMA) after breaking above it for the first time in over a year last week. The 20 and 100 SMAs maintain their bullish slopes well below the current level, limiting the chances for a steeper decline, but are of little relevance at the moment. Finally, technical indicators are aiming south within positive levels, forcing risk to the downside.

The daily chart for EUR/USD shows that the downward momentum is building. Technical indicators are moving firmly lower, retreating from the extreme overbought values, but still holding above the median lines. A bullish 20 SMA is around 1.1045, further supporting the case for a bearish extension once the zone breaks out. Finally, the 100 and 200 SMAs maintain modest upward slopes, but are too far below current levels to be relevant.

An extension below 1.0990 could see the pair drop towards 1.0950 en route to the 1.0910 region. On the other hand, resistance can be found at 1.1100 and 1.1145, with a clear advance above the latter exposing the 1.1200 threshold.