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Euro… after the fallout

FXstreet.com (Barcelona) - The shared currency was seen managing quite well Friday, leaving behind the recent pessimism, focusing first on regaining the 1.31 handle as a pre-requisite to re-visit May highs around 1.3240. The nearest event risk in the horizon will be today’s Non-farm Payrolls, with the market consensus expecting the US economy to have added 145K jobs during the month of April, bettering March’s lacklustre print at 88K.

… Where to now?

Although the 25 bp rate cut - not only largely expected but also well priced in by markets - bolstered on top by the already prevailing EUR shorts positioning, the always surprising Mario Draghi left the door open for negative interest rates, catching traders off-guard and triggering a deep sell-off in the EUR/USD, losing almost two big figures to the area of 1.3035/40.

In spite of the recent grim forecasts for the euro bloc by the European Commission, which portended the area contracting in 2013 albeit (theoretically? hopefully?) returning to the growth path in 2014, Italian and Spanish borrowing costs are extending the down trend, leaving the FX community scratching its head and trying to guess the next direction of the cross.

Now, focusing on today’s US Payrolls, it seems that a number around the median (145K) would be mostly neutral for the greenback, allowing further upside momentum to the shared currency. This represents the most likely scenario in light of the recent and contrasting ADP and Initial Claims figures in combination with the USD long positioning. Of course, we can’t rule out the surprise-factor (less favoured scenario) of better-than-estimated results, which would be supportive of the USD and thus allowing an extension of the recent selling interest in the euro.

The cross is now extending the consolidation pattern between 1.30 and 1.32 seen in the last weeks, orbiting around the 38.2% Fibonacci retracement of the February-April decline around 1.3115/20, partially recovering from yesterday’s sell-off.
The initial resistance arises at 1.3201, where sit the April 16th high and the top of the consolidation range, followed by the area of 1.3230/45, where converge the May 1st highs and the 50% retracement.

On the flip side, interim support lies at 1.3030 (55-day moving average) ahead of the psychological limestone at 1.3000. A breakdown of the latter would pave the way to the 1.2950/75 region, home of the key 200-day moving average, the 23.6% Fibonacci retracement of the February-April decline and January lows. A breach of that area would then target December lows around 1.2880/85 en route to 1.2740 (2013 lows).

European markets little higher as US NFP demands caution

While the German DAX 30, the French CAC 40 and the Italian FTSE MIB are up by 0.10%-0.20% after the European Commission economic growth forecast and ahead of the US nonfarm payrolls report, the Spanish IBEX 35 rises by 0.50% as Spain is likely to be given an extension to reduce its deficit until 2016 after a revision lower to its growth forecast and unable to meet the target. The British FTSE 100 is up by 0.06% after the UK Services PMI, up from 52.4 to 52.9 in April, instead of staying unchanged as expected.
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The shared currency remains in the positive territory on Friday, trading above 1.3100 and waiting for the US Payrolls figures due later. Recall that market participants expect the US economy to have...
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