Fundamental strength in the USD, a clear trend break, and a “trigger” in the form of US non-farm payrolls (NFP) numbers tonight ticks a lot of trading boxes.
The release of the Fed Open Market Committee’s minutes from the December meeting revealed a robust discussion about the timing of the end of monetary stimulus (QE). While markets sold off, this could be treated as a positive – the FOMC will stop injecting funds because the US economic growth is accelerating. either way, its likely to lead to USD strength.
Now have a look at the chart:
Source: CMC Tracker
A MACD cross-over, confirmed by a breach of the trendline.
The current selling pressure on the EUR/USD (USD buying) could relate to the release of the jobs numbers tonight. This week, the privately calculated ADP survey of jobs surprised the market. Estimates of 140,000 new jobs in December were well below the reported 210,000 increase. Market consensus for the official NFP tonight is around 150,000. While the ADP numbers are not always a good guide for the NFP, the potential for positive surprise is in place.
In Europe tonight there is a logjam of data releases – notably CPI and PMI’s for the EU and many major countries. My view is that Europeans are generally underestimating the weakness in the Euro economy – meaning the data before the NFP release could add further selling pressure to EUR/USD.
Traders looking for fundamental and technical factors pointing in the same direction will naturally examine this trade. “Swing” traders with a longer timeframe may look at selling EUR/USD at current levels, with a stop loss above resistance at 1.3158, targetting a move towards 1.2700. However, my shorter term focus means I’m looking at the following:
Sell EUR/USD at current prices, stop loss above 1.3048 ( the previous low).