The euro currency is set to open the new trading week under pressure against the US dollar this week after the July Non-farm payrolls jobs number came in much better than expected.
Due to the strong 528,000 headline number the market expectations of the Fed remaining positive about the US economy is increased, hence they can remain aggressive in regard to the rate hike cycle.
This is present in the Fed funds rate. The odds of a 75-basis point hike jumped to 61% from 40% prior to last Friday’s job report release. The market reaction was also very clear in this regard after the release.
Moreover, the unemployment rate fell to 3.5 percent last month further underscoring that the American employment situation is getting better not worse. Wage inflation is a problem though.
Wages are not rising at the same pace as inflation, this is a significant problem for the Federal Reserve. Average hourly earnings +0.5% m/m vs +0.3% expected, while Average hourly earnings +5.2% y/y vs +4.9% expected.
This week the EURUSD pair faces a wall of technical pressure if bulls cannot get past the 1.0250 level. Moving average analysis on the four-hour time frames shows this is the point where the EURUSD turns bullish.
Something that could be a challenge right now is sentiment towards the EURUSD. Sentiment has changed recently, and this could well stop the ongoing recovery in the single currency.
The ActivTrader Market Sentiment tool shows that some 67 percent of traders are bullish towards the EURUSD. This has risen since last week and could suggest more price losses ahead.
EURUSD Short-Term Technical Analysis
The four-hour time frame shows that the EURUSD pair has formed a rising price channel that is located between the 1.0100 and 1.0300 level. Typically, such patterns are bullish.
According to the potential upside target, as measured by the size of the rising price channel pattern, we could reasonably expect to see the EURUSD pair testing towards the 1.0500 level.
EURUSD Medium-Term Technical Analysis
Looking at the daily time frame a large head and shoulders pattern has been activated now after the price moved under 1.0600. This is the pattern to watch over the medium-term horizon.
Watch out for a further crash below parity, and possible the 0.9000 support level if we continue to see the EURUSD pair trading below 1.0600 level.
A smaller head and shoulders pattern has also played out to its full downside target, and it remains to be seen if this suggests that the downside is done for now and the EURUSD pair could move back to the 1.0800 area.