EURUSD Retraces On Upbeat ISM Data, Hawkish Fed Comments

06 Aug 2021

After surging briefly from the disappointing US Automatic Data Processing (ADP) jobs report released on Wednesday, the EURUSD currency pair failed to sustain the level and retraced towards its 20 day moving average support line. The strength in the greenback was bolstered by the release of ISM Non-Manufacturing PMI data that had beat forecasts. Furthermore, the hawkish tone by the Fed’s officials had begun to weigh on the pair.

The ADP’s private sector labour report is a measure of the change in number of employed people in private sector in the US. Data released on Wednesday showed an increase in only 330K new positions in July, falling short from market consensus of 845K. ADP reported that job creation in private companies tumbled as fears mounted over the worsening pandemic situation caused by the delta variant.

The EURUSD gains after the ADP data was short-lived as ISM Non-Manufacturing PMI, released on the same day beat market expectations. The economic activity in the US service sector grew at a record pace in July as Institute for Supply Management (ISM) Services PMI posted a new high of 64.1 from 60.1 in June. Anthony Nieves, Chair of the ISM Services Business Survey Committee voiced his opinions on the data. The “Employment Index reflected growth, even though the constrained labour pool continues to be an issue…[material] shortages, inflation and logistics continue to negatively impact the continuity of supply.”

The US Dollar Index (DXY), which measures the performance of the greenback against the six majors recently rebounded above 92.20. The strength in the dollar was boosted by the hawkish comments from Fed officials. On Wednesday, US Fed Vice Chair Richard Clarida hinted at an interest rate hike in 2023 following the surprising pace of the recovery from the pandemic. Moreover, San Francisco Fed President Mary Daly affirmed the possibility of reduction of the assets purchasing program later this year or early next year.

At the time of analysis, the EURUSD is headed to test the critical support at the 20-day moving average. The Relative Strength Index (RSI) has broken below the neutrality level of 50. Moreover, the Moving Average Convergence Divergence (MACD) indicator is showing bearish momentum with the histogram in the negative region. Our view on the pair is bearish bias with price target set at the July low around 1.175. If the price manages to pierce through this level, the next major support will be the yearly low at 1.170.

Next up, traders should pay attention to Friday’s release of the US monthly jobs report, Nonfarm Payroll (NFP) for July. Though the NFP for June was 850K, the market is expecting a figure closer to 381K for July. If the figure prints below 381K on Friday, it is likely to provide a short term boost for the EURUSD.

Key events to watch in the coming week:

Friday, 6th August

  • Germany – Industrial Production s.a. (MoM)(Jun)
  • US- Nonfarm Payrolls (Jul)

Monday, 9th August

  • Germany – Trade Balance s.a. (Jun)

Tuesday, 10th August

  • EU – ZEW Survey – Economic Sentiment (Aug)

Wednesday, 11th August

  • Germany – Harmonized Index of Consumer Prices (YoY)(Jul)
  • US- Consumer Price Index ex Food & Energy (MoM), (YoY)

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