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EUR-USD : Strong Jobs Numbers Suggest Fed Reluctance to Raise US Interest Rates

Currencies / US Dollar Jun 15, 2016 - 12:30 PM GMT

By: Submissions

Currencies Options Shark writes: In spite of currently dismal employment numbers, Janet Yellen, Federal Reserve Chair, has announced that federal interest rates will increase. Economists expect to see changes as late as September or July of this year; some believe the rate could be raised as much as twice.

Prior to December, the federal interest rate was a steady 0% for the previous seven years; the current rate is 0.5%. The raise in December was monumental after the economy steadily climbed thanks to the central bank’s decision to lower the rate to zero.

Potential Increases

Interest rates are once again a topic of discussion because economists are unsure of when or if they will increase this year, and by how much. Officials are hesitant to implement the quarter point policy tightening before ensuring that the economy will strengthen enough to support it. Hesitance may be the result of a dismal employment report released on Friday June 3rd.

Friday’s Labor Department report showed that only 38,000 jobs were added in May. The hiring average over the past three months has decreased to 116,000. Drops and surges in employment rates are normal occurrences. Since 2010, hiring gains have dropped below 100,000 and have recovered a total of six times.

Jobs Numbers

A report of -4.8 was released in May, which is the lowest employment rate we have seen since the recession. This did not come as a surprise, as numbers have dropped every month since the beginning of 2016, leaving officials cautious. Once employment recovers, the Federal Reserve will look to begin the increase in short-term interest rates.

The US can anticipate a steady approach in regard to economic policy, and this is likely to create opportunities in forex trading going forward.  While an increase is expected, economists are finding it difficult to pinpoint when this policy will come into play. The difficulty stems from the lack of guidance from the central bank that is likely due to general uncertainty of the economy’s current trends.

EUR/USD technical outlook (14 June 2016)

Key Resistance: 1.1610

Minor Support: 1.1075

Major Support: 4298.37

Trading Stance: We will step aside on this pair and wait for more lucrative buying opportunities near the key support zone at 1.0950 with candlestick confirmation.

Figure: EURUSD technical analysis, daily

The daily uptrend in the EURUSD is still intact albeit with minor retracements. Currently, the pair is trading around the 38.2% Fibonacci level drawn from the low of 3 December 2015 to the high of 3 May 2016.  Currently, risk reward ratio argues against entering into long positions. We will wait for more favorable buying opportunities which might present near the 61.8% Fibonacci level.

On the contrary, a decisive break of the 61.8% Fibonacci level will likely bring the pair down to the 1.0522 support zone (the low of 3 December 2015).  Considering all these parameters, risk-reward factors do not support entries at current levels.

By Options Shark

© 2016 Copyright  Options Shark - All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

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