EUR/USD Wrap Up for March 31

Last night I posted a video of the trade setup I used to catch yesterday’s break from the range with a decent selloff and scored some easy pips. I also mentioned my analysis for today and why I was predicting another decent rally on the EUR/USD. So I feel the need here to toot my own horn and brag a little, as we’ve seen the euro rally from last week’s low of 1.3385 to a fresh session high at 1.3543 and the pair has taken back all the ground lost on Tuesday’s selloff. As I went over briefly in yesterday’s video, this rally might be attributed to the end of the month flows that several fundamental forces produce. One of which is when out-performance in US securities markets relative to overseas markets causes investors to sell the “extra” dollars they’ve accumulated in their accounts and rebalance their portfolios buy buying currencies in the markets that have under-performed. Secondly, UK clearing banks typically make a payment to the EU on the last business day of the month which usually results in a significant amount of EUR/GBP needing to be bought up. It is usually transacted by a European central bank at the 10:00 GMT London fixing, and this is exactly when the rally upwards really took off.

Moving into today’s news, one thing that has been abundantly clear this week is the overwhelming number of analysts who are predicting a largely positive NFP this Friday, but as with most things related to forex, the picture got a whole lot more complicated today as economists, who were expecting the private sector to show a rise of 40,000 in the ADP employment report for March,  got blindsided with a fall of 23,000. Thus hopes for a big jump in payrolls on Friday have been dashed by today’s data, which has become increasingly reliable in recent months at predicting the NFP. Analysts believe that loads of temporary census jobs should provide a boost in non-farm payrolls on Friday, but I’d have to say that that is an optimistic outlook that might not prove true anymore. We also saw the Chicago PMI come in at 58.8, lower than expected.

The euro zone data was a mixed bag:

• German March jobless change -31k, better than median forecast +10k
• Euro zone March inflation estimated at 1.5% y/y, up from 0.9% in February, stronger than median forecast of 1.3% and highest since December 2008
• Euro zone February unemployment hits 10% vs 9.9% in January, highest since August 1998. EU unemployment 9.6% from 9.5%, highest since data started in January 2000

Combining high inflation figures with high unemployment equals a bad sign for the euro zone. Add to that the fact that the bonds sold yesterday by Greece as part of their debt consolidation plan performed horribly in the in the secondary market and Greece failed to sell all of the 12-year bonds it offered, placing less than 40% of them.

Looking ahead, I don’t believe the markets will be too lively at this point as the mother of all economic data edges closer towards us; the NFP of course. Look for a continued rally perhaps as high as 1.3568 but no higher than 1.3600 before we see a range begin to form as we head into Thursday’s trading. Good luck to you all!