With EUR/USD somehow unexpectedly higher above the 1.29, last at 1.2930 off Asian session lows at 1.2920, the pair is getting ready for next big risk event this Friday in the form of U.S. NFP at 12:30 GMT, same hour as the U.S. Trade balance. The pair is up +0.88% so far for the week, though still a -2% lower year to date, bouncing strongly from yesterday's fresh 4-month lows at 1.2747 post-BCE meeting.
EUR/USD has built this way a potential double low reversal pattern at the 1.2750 level, with yesterday's and March 27 lows. This level by the way, was the most bearish call from the Reuters poll one month ago, being past March 31 deadline for the call, and the one bank making the most accurate call was RBS. IDEAglobal was the second analyst who got close, calling for 1.2800, while it is now calling for 1.2400 lows by end of April, while RBS says 1.2700. The median of the forecasters for past end of March was around the 1.34 level, so, a big miss there. It's worth mentioning too that RBS has been calling for the 1.20s in EUR/USD for more than a year already.
Now for the EUR/USD to confirm this mentioned potential double low pattern, it would need to hold any subsequent pull-back lower above the 1.2820 level as the lowest, or in case it does not, the pattern might fail, and risks of further falling would increase. Ideally for the pattern to succeed would be not to lose the 1.2880 mark, analysts say.
As Valeria Bednarik points out, Chief Analyst at Fxstreet.com: "the hourly chart shows price consolidating near the high, with indicators deep in overbought territory, and price showing no aims of correcting lower," the analyst says, adding: "In the 4 hours chart price broke well above 20 SMA and indicators head north above their midlines, which supports an upward continuation towards 1.3000 next big figure. Bears will remain reluctant as long as price hold above 1.2880 level," she concludes.
From a more fundamental point of view; "Can this EUR/USD recovery be sustained?" wonders BK Asset Management managing director Kathy Lien: "On a technical basis, the breakout in the EUR/USD opens the door for a move to the currency pair's next resistance level of 1.30," she notes, expanding: "A move to the 100-day SMA at 1.3150 is also possible but we are skeptical of the sustainability of this rally as another rate cut is still on the table."
"While the European Central Bank and the Federal Reserve are both currently engaged in aggressive monetary easing," the analyst continues, "the ECB is debating the need to increase stimulus whereas the Fed is considering tapering asset purchases. This divergence in monetary policy plans should play a key role in the outlook for the EUR/USD," Kathy notes, concluding: "We believe the main takeaway from Draghi's comments today is that they haven't shut the door on additional easing."
As for the U.S. NFP data ahead, market expectations vary from a wide range of figures, but a majority of participants expect something between 190k and 170k, though some very optimistic ones call for a +260k number, with Westpac saying they expect a +200k figure: "While the Bloomberg median NFP forecast has crept down from 199K to 190K this week, we suspect the market is positioned for a figure nearer 170K, in the wake of soft ISMs, ADP and jobless claims," Westpac analyst Sean Callow points out.
"Westpac is still on 200K, with an unemployment rate of 7.8% (consensus 7.7%)," the analyst expands, concluding: "We expect USD to react positively on any upside payrolls surprise and vice versa i.e. pro-growth rather than as a safe haven. The U.S. Feb trade balance will be released at the same time, sure to be overlooked."
Analysts at TD Securities say that given the wide range of expectations, the possibility of a big surprise after the data diminishes, and thus big swings in currency levels should not be expected. While this might be the case, given the increasing volatility as of late, especially in commodities such as gold, silver, or oil, and Treasuries with U.S. bonds reaching 2013 low yields at 1.76% from 2.08% highs not that long ago, odds are for that volatility to continue, adding to the impressive move in yen yesterday following bold BoJ steps.