What cannot go up, must go down? EUR/USD has failed to extend its gains as several concerns have impacted the market mood. The Delta variant is not only spreading across the US – the world’s largest economy – but also emerging in China, the second-largest.
Beijing has already announced several severe restrictions to movement as the highly transmissible strain spreads in Wuhan – where it originated in late 2019 – and in other places. Investors are also worried about the wrath of authorities in the Asian giant when it comes to tech stocks.
The focus this week is on gaming firms, after cracking down on education companies last week. If China is forced to slow down, it could impact the entire world. On the other hand, China’s Services Purchasing Managers beat expectations in the latest read for July.
Coronavirus cases are falling in Spain, one of the hardest-hit countries from the current wave, providing hope that a highly vaccinated country can emerge from the virus, despite a higher bar for reaching herd immunity – now estimated at 80-90% of the population having antibodies.
The focus now returns to the US, where three top-tier events are eyed.
First, ADP’s private-sector labor report is set to rock markets – despite its uneven correlation with the official Nonfarm Payrolls report. America’s largest payroll provider is set to print an increase of 695,000 positions is projected
The second event to watch is the ISM Services PMI. Apart from being a business survey of the largest sector, its Employment component is helps shape expectations for Friday’s NFP. The parallel Manufacturing PMI disappointed on the headline – reflecting weaker growth prospects – but showed improvement when it comes to the labor market. The publication could cause choppy trading.
Last but not least, Federal Reserve Vice-Chair Richard Clarida is slated to speak about the economy later on, and he could provide hints about how close the Fed is to tapering. Apart from the importance stemming from his senior position, Clarida has also tended to provide relatively detailed roadmaps.
For example, he said that if high inflation – the topic topping investors’ concerns until several weeks ago – that if it persists through year-end, he would not consider it temporary. Will he say how much job growth would be needed for the Fed to announce it is tapering its bond buys?
The dollar suffered after the bank refrained from signaling when it is set to print fewer greenbacks last week, but Clarida could provide some clarity.
Upbeat US data and optimism from Clarida could boost the dollar, while weak figures and a cautious approach could send it lower. However, forex trading is never a one-way street and the picture could be more nuanced. Another realistic scenario is a strong ADP statistic, a disappointing ISM Services PMI, and then a relatively positive outlook from the Fed Vice-Chair.
Overall, the greenback could emerge as a winner, but after a fierce battle.
Momentum on the four-hour chart turned to the downside, a bearish sign. On the other hand, EUR/USD is holding above the 200 Simple Moving Average, which converges with the 1.1850 level – a resistance line from mid-July. That is the critical support line.
Below 1.1850, the next cushion is at 1.1830, which was a swing high in late July. It is followed by 1.1770 and 1.1750 – the latter being last month’s low.
Euro/dollar resistance is at 1.1910, the July high, followed by 1.1945, 1.1975 and 1.2015.