The euro-dollar pair began the trading week almost at the level of Friday's closing price. After a small, rather symbolic, weakening of the greenback during the Asian session, the EUR / USD bears seized the initiative again and the pair started to slide down to the base of the 16th figure. Sellers need to overcome the support level of 1.1600 to develop the downward trend. Meanwhile, the buyers have a much more difficult task to accomplish: they need to overcome the upper limit of the Kumo cloud on D1 to break the trend, thus breaking the 1.1780 mark. The events of the upcoming week may contribute to increased volatility for the pair, but it is an open question in whose favor this volatility will be.In my opinion, the pressure on the EUR / USD pair will only increase in the medium term, and not only due to the strengthening of the dollar,
Let's take a look at the main releases and events of the upcoming five-day trading week:
The economic calendar for the EUR / USD pair is almost empty today, and the only interest of the market is the speech of ECB Head Christine Lagarde, which will take place at the start of the US session. She will announce the report to the members of the European Parliament's Economic and Monetary Affairs committee. Since the topic of the report is directly related to monetary policy, the market will be particularly interested in it. Recall that the ECB has been increasingly criticizing the relatively high euro exchange rate recently. On the eve of the September meeting, the chief economist of the European Regulator, Philip Lane, took care of this issue, while Lagarde raised this topic at the meeting itself and a few days after it. Over the weekend, several members of the Central Bank also conducted a verbal intervention against the expensive euro. Thus, the governor of the Central Bank of Spain, Pablo Cos, and the governor of the Bank of Italy, Ignazio Visco, directly connected the growth of the single currency to the slowdown of inflation. Most likely, the head of the ECB will focus on this issue again today. If it even hypothetically allows currency intervention, the EUR / USD pair will be under a quite strong pressure.
This coming Tuesday, September 29, the focus will be on the inflation in Germany and the US consumer confidence indicator. The consumer price index in Germany last July and August was below zero. A further decline is expected in September: the CPI will fall to -0.2% (MoM), according to forecasts. The situation is not any better on the annual basis– the indicator should also remain in negative territory. On the contrary, the US consumer confidence indicator should show positive dynamics. After a two-month decline, it will rise to at least 90 points, and most analysts are sure of this. Federal Reserve officials Richard Clarida, John Williams, Randal Quarles, and Patrick Harker will also speak on Wednesday. Their position will have a strong impact on the greenback because most of them have the right to vote this year.
Meanwhile, China will be the main focus this Wednesday, September 30. The PMI index for the manufacturing sector and the index of activity in the non-manufacturing sector will be revealed. According to general forecasts, September indicators will be almost at the same level of August. In this case, the release will probably be insignificant to the market. But if the numbers are in the "red zone," anti-risk sentiment in the market will rise again and the dollar will once more be in demand as a protective asset. The final data on US GDP growth for the 2nd quarter, as well as the ADP report on the growth of the labor market in the States will also be announced on Wednesday. But these releases are unlikely to provoke volatility. In the first case, we are dealing with outdated data (the record decline in the US economy was "played back" almost a month ago), and in the second case, there is a low correlation with official figures. Recent ADP reports did not match Non-Farm payrolls reports, so you should not focus on them this time.
On Thursday, October 1, all the attention of the pair's traders will be focused on the US ISM manufacturing index, which can significantly strengthen the dollar bulls' position. Mind that US manufacturing indicators have recently shown growth, and this fact provides background support for the US currency. Thus, if the ISM index collapsed to 41 points at the height of the coronavirus crisis, then it already reached 56 points in August. In September, further growth is expected to reach 58.7 points. And obviously, such dynamics will be the additional support.
However, the most important event of the week for the pair's traders will be Non-Farm payrolls report, which will be published on Friday, October 2. It is worth recalling that the key components of the previous release were significantly better than expected. Thus, the unemployment rate fell from 10.2% to 8.4% (despite the fact that this key indicator was projected to fall only to 9.8%). Most importantly, the rise of the salary level is very delightful. According to preliminary forecasts, the monthly salary level was expected to fall to zero, and to slow down to 4.5% in annual terms. But in reality, the indicators came out in the "green zone:" on a monthly basis, the indicator grew to 0.4%, on an annual basis - to 4.7%.
Non-Farms will also show a strong result, based on the general forecast. The rate of increase in employment should grow to almost a million (980 thousand), and the level of average hourly wages on an annual basis may grow to almost 5 percent (4.8%). The unemployment rate, in turn, should be able to fall to almost eight percent (8.1%). A little reminder that this indicator was almost at the 15% level last April.
Thus, if the preliminary forecasts of experts are accurate, the current week's macroeconomic releases will be in favor of the US currency. Meanwhile, the euro is (and will still be) under pressure from the rhetoric of ECB members. The "high cost" of the single currency is an annoyance for the members of the European regulator, so any more or less large-scale corrective growth of the EUR / USD pair will cause a negative reaction from the Central Bank.
To summarize it all, we can conclude that short positions on the pair are still in priority. The first target is 1.1600. The main target is 1.1560, located just below on the lower border of the Kumo cloud on the daily chart.
