Earlier today, the U.S. Labor Department showed that the economy added 292.000 jobs in December, beating expectations for a rise of 200.000. The U.S. unemployment rate remained unchanged at 5.0% last month, in line with expectations. Thanks to these numbers, the USD Index moved sharply higher and climbed above 99. How did this move affect the euro?

In our opinion the following forex trading positions are justified - summary:

• EUR/USD: short (stop-loss order at 1.1363; initial downside target at 1.0462)
• GBP/USD: none
• USD/JPY: none
• USD/CAD: none
• USD/CHF: none
• AUD/USD: none

EUR/USD

Quoting our yesterday’s alert:

(…) EUR/USD bounced off the lower border of the brown declining trend channel and climbed above the neck line of the head and shoulders formation, invalidating earlier breakdown. Although this is a positive signal, which suggests further improvement, we think that the space for gains is quite limited. Why? (…) even if the exchange rate moves lower from here, the upper border of the trend channel in combination with this week’s high will likely stop currency bulls.

Looking at the daily chart, we see that the proximity to the upper border of the declining trend channel encouraged currency bears to act, which resulted in a sharp pullback. With this downswing, the pair slipped to the green support zone (reinforced by the previously-broken neck line of the head and shoulders formation), which triggered a rebound in the following hours. Taking this fact into account, and combining it with a buy signal generated by the Stochastic Oscillator, it seems that currency bulls will try to push the pair to the upper line of the trend channel once again. Nevertheless, even if we see such price action, our yesterday’s commentary remains up-to-date:

(…) the pair remains under the solid resistance zone (marked on the weekly chart) created by the previously-broken green resistance line, the barrier of 1.1000, the orange resistance zone and the long-term red declining resistance lines, which successfully stopped further rally in recent weeks. Therefore, we believe that as long as there won’t be a breakout above this area, another attempt to move lower is more likely than not.

Very short-term outlook: bearish
Short-term outlook: bearish
MT outlook: bearish
LT outlook: mixed

Trading position (short-term; our opinion): Short positions (with a stop-loss order at 1.1363 and the initial downside target at 1.0462) are justified from the risk/reward perspective. We will keep you informed should anything change, or should we see a confirmation/invalidation of the above.

On an administrative note, today’s alert is much shorter than our usual Friday’s Forex Trading Alerts, but you will find all our six currency pairs in our Monday's alert. Thank you for understanding.

Thank you.

Nadia Simmons
Forex & Oil Trading Strategist
Przemyslaw Radomski, CFA
Founder, Editor-in-chief

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