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EUR/USD - Negative set up ahead of the payrolls release

  • Four days of lower highs and lower lows.
  • Risk reversals hit 3-1/2week low.
  • Eyes US non-farm payrolls and wage growth release.

EUR/USD failed to hold above the 100-day MA yesterday and fell to 1.1772; the lowest level since Nov. 22.

Negative setup

The daily chart shows four consecutive daily candles with lower highs and lower lows, suggesting the bears are in control. The daily RSI fell into the bearish territory (below 50.00).

Risk reversals drop

Also, the one-month 25 delta risk reversal gauge has shed the bullish bias. It fell to 0.15 yesterday from the previous day's print of 0.262. Yesterday's reading was the lowest since Nov. 13. The decline in the risk reversals indicates increased demand for the bearish bets (put options) on the EUR.

Yield differential rises in USD positive manner

Further, the 10-year US-German yield differential widened to 208 basis points yesterday; the highest level since Apr. 12. The rise in the spread in the USD negative manner adds credence to the negative setup on the charts and the drop in the risk reversals gauge.

Focus on US data

Kathy Lien from BK Asset Management writes - "the EUR/USD's direction will be determined exclusively by the market's reaction to the U.S. jobs report so there's scope for an upside or downside move depending on the outcome."

EUR/USD Technical Levels

Valeria Bednarik, Chief Analyst at FXStreet writes - " The pair was unable to recover beyond the 1.1800 threshold, the 61.8% retracement of its latest bullish run, and maintains a bearish stance heading into the Asian opening and according to the 4 hours chart, as the price remains below its 20 and 100 SMAs, with the shortest crossing below the largest, while technical indicators present modest bearish slopes within negative territory. The pair has an immediate static support at 1.1750, followed by November 21st low at 1.1712. A break below this last seems unlikely with just the NFP report, although the greenback may get an additional boost if the US Senate manages to extend the debt ceiling and avoid a government shutdown."

Support levels: 1.1750 1.1715 1.1675

Resistance levels: 1.1800 1.1830 1.1860

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