US Dollar Falls Through Support, EUR/USD To Post-ECB Highs After NFP

Talking Points:

  • Friday morning’s NFP report was somewhat of a mixed bag, but this seemed to do little to help US Dollar bulls as DXY has continued its Q3 descent below support. The likely culprit here was lagging Average Hourly Earnings within this Non-Farm Payrolls report, coming in at .2% versus the .3% expectation.
  • Noticeable thus far in the new quarter is the return of EUR/USD strength, and the pair is now trading at a fresh post-ECB high. Prices in the pair have been in a consistent bullish pattern over the past week, and this resembles a similar scenario from last year around the ECB’s October rate decision. When the European Central Bank extended stimulus into 2018, EUR/USD dropped below support and remained bearish for about two weeks. But this was soon offset by a red-hot GDP report out of Germany, and prices were pushing 1.2500 in short-order. Might we be headed for a similar scenario? European inflation came-in at a one-year high in June, and if it keeps up this pace, the ECB may have a difficult time sitting on current rates ‘at least through the summer of 2019.’

NFP AS A MIXED BAG, USD BEARS PUSH BELOW KEY SUPPORT

Friday morning’s NFP report was somewhat of a mixed bag. While the headline number beat expectations, the unemployment rate and Average Hourly Earnings portion of the report did not. Given the intense focus that’s been paid towards inflation out the US recently, that miss in AHE likely took a considerable portion of market participants’ attention around the release, and the net response thus far has been a deeper drop in the US Dollar as the currency continues its Q3 sell-off.

US DOLLAR VIA ‘DXY’ FOUR-HOUR PRICE CHART: SUPPORT BREAK TO THREE-WEEK, POST-ECB LOWS

US Dollar Four Hour Price Chart USD

Chart prepared by James Stanley

At this stage, the US Dollar is testing the 23.6% retracement of the bullish move that began in Q2. This does keep the US Dollar in a bullish spot, but given the pace with which losses have shown thus far in the fresh quarter, traders will likely want to move-forward with support or buy the dip strategies with extreme caution. There is a deeper support level that could be a bit more interesting, however, and this runs around the June swing-lows of 93.20 in DXY. This area of prior swing support runs very closely to the 38.2% retracement of the Q2 bullish move.

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