EUR/USD is higher in this morning’s trading following Wednesday’s move to the downside. The pair is currently trading at 1.0626, up 0.38% over Wednesday’s North American close. However, the advance has not yet lifted the pair above first resistance. Thus, EUR/USD is still considered as holding in a consolidation phase in an effort to work off what had become an extreme oversold condition resulting from the November decline.
In today’s news, the final reading of the Markit Eurozone PMI manufacturing index was confirmed at 53.7, unchanged from the flash reading, and the strongest reading for 34 months. This was an increase from 53.5 and in line with market expectations. In addition, the final Markit German PMI manufacturing index was revised slightly to 54.3 from the flash reading of 54.4 and a retreat from the 33-month high of 55.0 for October. The data was fractionally below expectations, but well above the 2016 average of 53.0.
Finally, the Eurozone unemployment rate declined to 9.8% for October from a revised 9.9% for September, which was originally reported as 10.0% and was also lower than the consensus forecast of 10.0% for the month. This was significantly below the 10.6% rate for October 2015 and the lowest recorded rate since July 2009.
While EUR/USD is moving higher following the data releases, the pair remains below first resistance at Monday’s intraday high at 1.06855, which represents a failed test of the November 22nd intraday high at 1.0660. Clearing this level of resistance would leave the next target at the 38.2% retracement of the November decline at the 1.07565 level.
Failure to clear first resistance would keep the current consolidation phase intact and leave the pair at risk for another drop to key support at the low established in last week’s trading at 1.05183, which represents a test of key support at the December 2015 corrective bottom at 1.05237 as well as the major corrective bottom established in March 2015 at the 1.04590 level. A drop below the key zone of support would confirm a breakdown from a multi-month trading range, calling for further losses in EUR/USD on a longer term basis.
With dollar strength still expected to remain a dominant theme, the probabilities appear to favor a breakdown below support, rather than continued strength and a breakout above resistance. At present, fed funds are pricing in a 96.3% probability of an interest rate increase at the December FOMC meeting. And interest rate hike is supportive to the dollar, a development that should work to keep rallies in EUR/USD limited.
Later today in the US, initial jobless claims are on the calendar, as is construction spending and the ISM manufacturing survey. October construction spending is projected to come in showing an increase of 0.6% following a decline of -0.4% in September. Regarding the ISM Index, economists expected the figure to rise slightly to 52.1 from 51.9 in October.
The key report for the week, however, is nonfarm payrolls for November on Friday. This figure will be particularly important given the expectations for a rate hike in December. Consensus estimate is for an increase of 180K jobs. The strong ADP report released yesterday sets a positive tone for the BLS report on Friday.