Throughout Tuesday, the EUR/USD currency pair traded with increased volatility and a clear upward trend. By the end of the day, the price had consolidated above the moving average line, changing the short-term trend to an upward one. Recall that over the weekend, we anticipated the beginning of an upward correction, given that the European currency has been declining against the dollar for over a month. However, we also mentioned that the correction is unlikely to be strong and will depend on the nature of the macroeconomic data. Yesterday, the first report in a series on the labor market and unemployment for this week was released, and it fell short.
The dollar's future this week will depend on other macroeconomic statistics. Specifically on crucial reports regarding European inflation, ISM business activity, GDP, Nonfarm payrolls, and US unemployment. As we've said before, trying to predict the values of these reports is not only pointless but also risky. The US economy is slowing down; that's a fact. However, based on this understanding, key macroeconomic indicators don't have to decline every month. Furthermore, unemployment has been forecast to rise significantly for the past six months, yet it remains at 3.5%, the lowest in the last 50 years. Therefore, the JOLTs report should be able to follow other reports this week. It doesn't necessarily mean that other data will also disappoint.
Meanwhile, we've observed an upward retracement, meaning the oversold condition of the CCI indicator has formally been addressed. The same CCI indicator has shown divergence, which could lead to a resumption of the euro's decline. So, the primary plan for this week remains unchanged: a mild upward correction is possible only if supported by the macroeconomic backdrop, and in the medium term, the pair still leans towards a decline.
Should we expect a rise in US unemployment?
So, the number of job openings in the US in July was 8.8 million, with a forecast of nearly 9.5 million. The June figure of 9.6 million was revised to 9.1 million. The dollar fell, logically and predictably. However, what conclusions can this report lead us to? First and foremost, these are just job openings, not the unemployment rate. There's no reason to expect unemployment to increase in August; in July and June, it decreased by 0.1%. As we see, there's no correlation between job openings and unemployment. Therefore, we should consider only some of the package of US macroeconomic data for this week.
Furthermore, the US economy continues to be very good despite the Federal Reserve's key rate increase of 5.5%. That is, the American currency still holds a more advantageous position compared to the euro. The economy continues to grow, unemployment is minimal, and new jobs are being steadily created. The only disappointment comes from the business activity indices, which are even more disappointing in the European Union and the United Kingdom. After all, we are not just concerned with American figures but also with their comparison to European ones. How can one say that the euro should rise on weak American statistics if the data in the European Union is even worse? Therefore, the US dollar, which has been falling for almost a year, should continue strengthening against the euro and the pound in nearly any scenario and under any fundamental backdrop.
The average volatility of the EUR/USD currency pair over the last five trading days as of August 30th is 72 points and is characterized as "average." Therefore, we expect the pair to move between the levels of 1.0789 and 1.0933 on Wednesday. A downward reversal of the Heiken Ashi indicator would indicate a possible resumption of the downtrend.
Nearest support levels:
S1 – 1.0803
S2 – 1.0742
S3 – 1.0681
Nearest resistance levels:
R1 – 1.0864
R2 – 1.0925
R3 – 1.0986
Trade Recommendations:
The EUR/USD pair has consolidated above the moving average and will aim to continue its growth this week. One should consider long positions with targets of 1.0925 and 1.0933 until the Heiken Ashi reverses downward. However, the pair will continue to grow only with macroeconomic backdrop support. Short positions can be considered if the price consolidates below the moving average line, with targets of 1.0789 and 1.0742.
Explanation of Illustrations:
Linear Regression Channels – help determine the current trend. If both point in the same direction, the trend is strong.Moving Average Line (settings 20.0, smoothed) – determines the short-term trend and the direction in which one should currently trade.Murray Levels – target levels for movements and corrections.Volatility Levels (red lines) – the likely price channel the pair will trade in the next day based on current volatility indicators.CCI Indicator – its entry into the oversold area (below -250) or the overbought area (above +250) indicates that a trend reversal is approaching in the opposite direction.