Euro Continues to Drop Ahead of August Employment Data

EUR/USD has settled in the mid-1.11s after basing at 1.1087 following yesterday’s post-ECB dive. The ECB’s pledge of more stimulus if needed, coupled with downward revisions to both growth and inflation projections, should keep the EUR/USD on the defensive. Market attention is now fully focused on today’s U.S. August payrolls report, which will be decisive in shaping Fed policy expectations into the mid-Sep FOMC.

Forecasts for Friday’s employment number average approximately a 220K increase in nonfarm payrolls, similar to the July gain. The unemployment rate is likely to dip to 5.2% from 5.3%. Average hourly earnings should rise 0.3% after edging up 0.2% in July. Such figures should be good enough for the Fed to pull the tightening trigger. An employment report of this stature could have potential to shift EUR/USD down another leg. The wild card will remain, however, the dovish nature of Yellen and other core Committee members, and their worries over market instability.

The EUR/USD slipped below the 20-day moving average at 1.12 which was former support now resistance. Momentum has turned negative with the MACD (moving average convergence divergence) index recently generating a sell signal. This occurs as the spread (the 12-day moving average minus the 26-day moving average) crosses below the 9-day moving average of the spread.

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