The EUR/USD finished the day down 116 pips at 1.3044. Economic data was quiet for the most part but weekly jobless claims out of the U.S. came in better than expected at 323k vs. 3.35k forecast. The U.S. dollar was well bid across the board, with the majority of action taking place in the USD/JPY which crossed the 100 threshold for the first time in four years. This seemed to help provide additional USD buying against other pairs, and also helped limit advances in commodities which were primarily lower for the day. Economic releases out of the eurozone in the coming session include German Trade Balance, Italian Industrial Production, and EU Consumer Price Index.
After the better than expected jobs number past Friday, and another week of improvement in continued claims, some analysts view it as a sign the U.S. dollar could be set up for further gains in coming weeks. Furthermore, if we see continued gains in USD/JPY it could also be a tailwind and help the U.S. dollar remain well bid in other pairs.
According to Kathy Lien of BK Asset Management, "The timing of the drop in claims couldn't better for the U.S. dollar. The Federal Reserve was surprisingly optimistic at their last monetary policy meeting and their sentiment was confirmed by the stronger non-farm payrolls report and now the improvement in claims suggests that May payrolls will be solid as well. This will keep discussions of tapering asset purchases going inside the Fed, which should help dollar at a time when other major central banks are actively weakening their currency through lower interest rates or currency intervention."
Although we did see a lot of economic data out this past week during the Asia session, releases during the European/US sessions were limited which likely helped keep the EUR/USD range bound the majority of the week. Furthermore, we didn't hear much chatter from ECB Officials regarding ideas of further easing. These developments did not help clear up the technical picture which still remains neutral at the moment.
According to Val Bednarik of FXStreet.com, "The EUR/USD saw a 100 pips quick slide in this American afternoon, triggered by a strong upward momentum in greenback, as USD/JPY broke above 100.00. Regardless the wild moves across the board, the EUR/USD manages to hold above the base of this past months range, respecting the 1.30/1.32 levels. However, this move has definitely put bears back on alert mode, and further slides may come along the way, with a break below 1.2970, 38.2% retracement of the latest daily fall signaling a stronger midterm fall, eyeing first 1.2880 static support zone."
She went on to add, "As for the short term, the 4 hours chart shows still plenty of room to go, as indicators head lower around their midlines. Short term sellers will try to catch the rally on pullbacks towards the 1.3050/80 price zone, yet as long as below this last, downside remains exposed."
From a longer term technical perspective, the situation remains the same as it has since early April. The pair continues very choppy trading in a range between 1.3240 and 1.2950. Unfortunately, short term moving averages and momentum indicators are also stuck in neutral and not providing much help as to the future direction of the pair. Initial resistance will come in at 1.3074(the 20dma), followed by 1.3102 (the 9dma). First support sits at 1.3006 (the 50dma), followed by 1.2950 (bottom of range)
After a quiet week of economic data out of the coming week will bring a number of releases that may be the catalyst to finally break the EUR/USD out of its recent trading range. Should economic data out of the U.S. continue to beat estimates (as recent employment data has), the EUR/USD may be set for further downside.
In conclusion, some of the important reports out of the eurozone to monitor next week include: German CPI, EU Industrial Production, German ZEW, German GDP, and EU GDP. Furthermore, the reports of the U.S. to monitor will be: Retail Sales, NY Empire Manufacturing, PPI, Industrial Production, CPI, Housing Stars, and the Philadelphia Fed Index.