January’s US employment report to shake the markets

The USD edged higher against its counterparts yesterday and markets are increasingly focusing on the release of January’s US employment report in today’s early American session. The Non-Farm Payrolls (NFP) figure is expected to drop to 170k if compared to December’s 256k, while the unemployment rate is expected to remain unchanged at 4.1% and the average earnings growth rate to slow down to 3.8%yy. Should the actual rates and figures meet their respective forecasts, we may see the USD slipping as the drop of the NFP figure, may disappoint traders. Overall though we do not see the forecasted picture showing a substantially loosening US employment market, thus may allow the Fed to maintain its hesitations in cutting rates further. Yet the actual rates and figures tend to differ from the forecasts, hence should the report imply a tighter than expected US employment market we may see the USD getting further support. A substantially looser employment market than expected could weigh on the USD. The release may have ripple effects beyond the FX market and signals of a tighter US employment market could weigh on US equities and gold’s price.

EUR/USD remained in a sideways motion between the 1.0330 (S1) support line and the 1.0450 (R1) resistance line over the past three days. We tend to maintain a bias for a sideways motion of the pair as long as its price action continues to respect the prementioned levels. Also the RSI indicator is running along the reading of 50, implying a rather indecisive market which could allow the sideways motion to continue. Yet the direction of the pair could change, depending on the release of the US employment report for January. For a bullish outlook we would require EUR/USD to break the 1.0450 (R1) resistance line and start aiming for the 1.0600 (R2) resistance level. Should the bears be in charge of the pair’s direction, we may see the pair breaking the 1.0330 (S1) support line and start aiming for the 1.0175 (S2) support level.

At the same time as the US employment report for January we also get Canada’s employment data for the same month. The unemployment rate is expected to tick up to 6.8% if compared to December’s 6.7% and the employment change figure is expected to drop to 25.0k if compared to December’s stellar 90.9k. Overall, the data tend to align in implying a loosening Canadian employment market which in turn could weigh on the Loonie as such data may enhance the dovishness of BoC. On a deeper fundamental level, we note that the drop of oil prices and the threat of the US imposing tariffs on the importing of Canadian products in the US, tend to weigh on the Loonie. 

USD/CAD hit a floor and stabilised just above the 1.4280 (S1) support line. On a technical level, we maintain a bias for a sideways motion for the pair and note that the RSI indicator seems to have stabilised just below the reading of 50 which could imply a continuance of the sideways motion for the time being. Yet the simultaneous release of the US and Canadian employment data for January could alter the pair’s direction. Should bulls take over, we may see the pair breaking the 1.4465 (R1) resistance line and set as the next possible target for the bulls the 1.4665 (R2) resistance level. On the flip side, a bearish outlook could emerge should the pair’s price action finally break the 1.4280 (S1) support line, which has held its ground on various bearish attacks since the 17^a. of December and lower we note the 1.4100 (S2) support level.   

Other highlights for the day:

In today’s European session, we get Germany’s December industrial output and UK’s January Halifax House Prices, while ECB Board Member De Guindos and BoE Chief Economist Pill speak. In the American session, we get the preliminary UoM consumer Sentiment for February, while Fed board Governors Bowman and Kugler speak. Tomorrow, we note the release of China’s inflation data for January while on Monday we get Japan’s current account balance for December.

EUR/USD Daily Chart

• Support: 1.0330 (S1), 1.0175 (S2), 0.9950 (S3)
• Resistance: 1.0450 (R1), 1.0600 (R2), 1.0760 (R3)

USD/CAD Daily Chart

• Support: 1.4280 (S1), 1.4100 (S2), 1.3925 (S3)
• Resistance: 1.4465 (R1), 1.4665 (R2), 1.4850 (R3)

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