EUR/USD – Speculators Increasingly Dollar Bullish

Intermediate
  • Dollar bulls are in full cry
  • The strength of the Dollar will continue, even after mixed jobs data
  • There was no Euro gain on Friday afternoon
  • A Euro bounce on Monday should be sold, targeting 1.1184

On Friday, April 5th, 2019 U.S. job growth returned to trend last month as several variables that had dampened the February reading washed out of the data. However, but the latest wage data was shy of forecasts.

According to the Department of Labor, Non-Farm Payrolls grew 196,000 during the month of March (the consensus forecast was just +175,000), following an initially reported increase of 20,000 in February, alongside a combined upwards revision for the previous two months of 14,000.

Before the report for March the three-month moving average for Non-Farm private sector job gains had measured 186,000 and that for all H2 2018 at 211,000.

Average Hourly Earnings, a metric watched closely by the Fed was somewhat disappointing as it booked a gain of 0.1% month-on-month (consensus: 0.3%), depressing the year-on-year rate of increase down from 3.4% to 3.2% (consensus: 3.3%).

The Labour Force Participation Rate also eased back as it retreated 0.2% to 63.0% as the civilian labour force and employment shrank by 224,000 and 201,000, respectively.

This was not enough to deter currency speculators as the EURUSD rate fell 0.125% on Thursday and another 0.04% on Friday after the mixed U.S. jobs and wages data.

I accept that the data on the Commitment of Traders (COT) released this week may be dated to April 2nd but the Commodity Futures Trading Commission (CFTC) showed the non-commercial futures contracts of U.S. Dollar Index futures, traded by the larger speculative players and active hedge funds, totalled a net position of 28,848 contracts. This was a weekly gain of 3,563 contracts from the previous week which had a total of 25,285 net contracts. The path of the net speculative long for Dollar is seen to be well embedded in an impulsive channel moving higher as shown in the chart below.

COT Net Dollar Bullish Positions for 08-04-19

Source: Commodity Futures Trading Commission

This week’s net position was the result of the gross bullish position gaining 7,831 contracts to a weekly total of 44,774 contracts. The gross bearish position rose by a lesser amount of 4,268 contracts for the week to a total of 15,926 contracts.

Euro currency positions fell by over -18,000 this week and declined for a third straight week. The overall Euro position is currently at the most bearish level since December 6th of 2016 when the net position totalled -114,556 contracts. Of the major currencies the Euro suffered the most selling.

The EURUSD rate may bounce back for the first two hours of trade on Monday, however, by mid-morning in European hours that will be exhausted and stretching out toward the week and monthly perspective the view is distinctly bearish.

The chart below shows the one-month (left hand side) and the one-week (right hand-side). From that it may be that early Monday trading will see EURUSD make a stab higher toward 1.1240. This will fade quickly, and I would be short looking for a play to 1.1211 and then 1.1184

EURUSD 1 Mth and I Wk 08-04-19

Source: www.tradingeconomics.com , Spotlight Ideas

Summary:

Sell in the region of 1.1240 on an early Monday Euro bounce

Target 1 1.1211   Target 2 1.1184

Stop at 1.1260

Stephen Pope

Macroeconomic Strategist

Stephen Pope is the Managing Partner of Spotlight Group. He has worked in the world of finance since 1982 and has performed d...continued

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