On Friday, traders in most markets were in a wait-and-see mode ahead of the key US payrolls report. EUR/USD came close to Thursday’s correction low (1.2364) at start of trading in Europe, but the test was rejected. Before noon, there were only few eco data in Europe. EUR/USD tried a tepid rebound, but the move ran already into resistance at the 1.24 mark. There was some ado on the financial media about the recycling of the proceeds from the interventions of the Swiss national bank. This caused quite a divergent development between the peripheral bond markets (widening) and the ‘semi-core’ markets (narrowing). It is not easy to see the real substance/relevance of these rumors.
Nevertheless this kind of divergence on the intra-EMU bond markets doesn’t support the single currency. However, after the steep decline on Thursday, most investors were cautious to take new positions before the US payrolls report. The US labor market report came out on the weaker side of expectations. The details were not that bad. Nevertheless, markets were clearly focused on the bad news. Equities nosedived. It took a few seconds from EUR/USD traders to decide which card they would play. However, soon they played to usual risk-off correlation. EUR/USD broke below Thursday’s low and started a new downleg.
The pair even touched a minor now low for the year after the close of the European markets. The pair closed the session at 1.2291, a loss of more than one big figure compared to the 1.2392 close on Thursday evening. EUR/USD touched a new 2012 low at 1.2288 on June 1 as uncertainty on the EMU debt crisis weighed. Last month’s poor US payrolls report finally provided the trigger for a technical rebound that was extended further out in June. However, the next high profile level on the charts 1.2824 (21 May top) stayed out of reach and the rebound faltered The 1.2443/36 support was extensively tested going into the EU summit, but a sustained break didn’t occur.
EUR/USD reached a lower top at 1.2693 after the EU summit, but a test of the range top again didn’t occur. Thursday’s break of 1.2553 and yesterday’s break of the 1.2408 support deteriorated the short-term technical picture again The 1.2288 range bottom was hit on Friday. Sustained trading below this high profile level would open the way for a revisit of the 1.1877 level (2010 low + low of EUR/USD since the start of the debt crisis). In a longer term perspective, we remain EUR/USD negative and think that this level might be reached over time. Short-term, it might take some time for EUR/USD to digest the losses at the end of last week. Nevertheless, EUR/USD is still captured in a sell-on-upticks pattern. Sustained trading above the 1.2500 area would be an indication that the downward pressure is easing short-term. We don’t expect that to happen anytime soon.