U.S. Jobs Improve, Unemployment Rises

US Dollar Hits Bump in the Road Ahead of Fed Minutes

by Bogdan Giulvezan

Last week’s U.S. Non-Farm Payrolls report posted better than expected numbers and showed that 850K new jobs were created in June, while the general consensus was 725K. However, the strong reading was overshadowed by an uptick in U.S. unemployment, as the rate rose from 5.8% to 5.9% (anticipated 5.6%).

The greenback started the week in neutral gear and although overall the data shows positive progress, the prospect of a rate hike is now a bit blurrier, or at least there’s time for the Fed to wait until deciding to taper asset buying or hike the interest rate. In this regard, the Meeting Minutes scheduled for later in the week will be a key release and will probably offer more clues on the timeframe for the rate change.

Key Events for the Week Ahead

Today U.S. banks are closed in celebration of Independence Day, which means that no important data will come out and may translate into a slow trading session. The action picks up Tuesday, July 6 with the release of the Eurozone ZEW Economic Sentiment, which is a diffusion index that acts as a leading indicator of economic health, with a moderate impact on the Euro. The release is scheduled at 9:00 am GMT and the expected reading is 79.0, a drop from the previous 81.3.

On the dollar side, we have the ISM Services PMI, which is an index based on a survey of about 300 purchasing managers, focused on the overall quality of business conditions in the U.S. Services sector. It also acts as a leading indicator of economic health and usually, numbers above expectations can trigger US Dollar strength. The forecast is 63.9, very close to the previous 64.0; the scheduled release time is 2:00 pm GMT.

Wednesday, July 7 at 6:00 pm GMT the FOMC will release the Minutes of their latest Meeting, offering details of the reasons that determined the latest rate decision. The document will have a bigger impact if contains any clues on upcoming monetary policy changes but either way, this is considered a high-impact release, thus caution is recommended.

Technical Outlook – EUR/USD

Currently trading at 1.1870, the pair is showing rejection off a bearish trend line that was broken earlier in the year. Recent price action shows exactly why some drawings and chart patterns should be kept on the chart even after they are broken.

As we can see on the Daily chart below, price bounced twice at the trend line, which indicates that the pair may be headed for the resistance at 1.1970. Depending on the impact of the data released throughout the week, we may see a break of the mentioned resistance or a move below the trend line and closer to 1.1700 support.

Considering that the latest strong move belonged to the bears, it’s likely to see a continuation despite the recent bounce. The MACD is trading below the histogram and the RSI is below its 50 level without being oversold, which are both signs that the bias is tilted towards the short side.