US dollar remains weak on soft payrolls data

May 12, 2016
US dollar remains weak on soft payrolls data August 17, 2018 Riya Joshi

us dollarFor the past two months, the EURUSD pair exhibited a range bound movement between 1.0585 and 1.1450.

A week before, the currency made another attempt to cross above the upper band. However, selling pressure pushed the currency pair once again below 1.1450.

In the past, the currency pair showed little resistance to the selling pressure. It looks different this time. A quick look at the prevailing scenario in the Europe and US would enable a trader to make a clear assessment of the trend.

Most of the US economic data missed analysts’ estimates last week. To begin with, the ISM’s (Institute of Supply Management) Purchase Managers Index (PMI) reading for April was 50.8 against the analysts’ estimates of 51.4. The previous month’s reading was 51.8.


The ADP non-farm employment change data, which reflects the change in the number of employed people, announced last Wednesday, was also below the consensus estimates. In April, the US added only 156,000 jobs against an expectation of 205,000. The data were also below the previous month’s addition of 194,000 jobs. Similarly, the unemployment claims increased to 274,000 for the week ended April 30th , 2016. It was 17,000 higher than the previous week and 13,000 higher than the analysts’ estimates.

It can be remembered that Kaplan, the Dallas Fed president, stated that he would advocate a rise in the interest rate if the second quarter numbers are favorable. Earlier in March, San Francisco President John Williams echoed a similar opinion. Considering the series of negative data, the market believes that the Fed will not go in for an interest hike in June. Such a view has turned the sentiment bearish against the US dollar. On the other hand, in the Euro zone, the German trade balance data reported on Tuesday was better than market’s expectation. The German trade balance was Euro 23.6 billion in March, compared to Euro 20 billion in February. The analysts’ expectation was Euro 20.4 billion. The EURUSD currency pair is trending upwards because of these factors. The US dollar will continue to remain weak until there is an improvement in the unemployment scenario.

Technically, the currency pair has firm support at 1.1039 and resistance at 1.1450. The RSI indicator continues to remain firmly above the half-way mark. The price movement is also confined within the ascending channel. Thus, a currency trader should take a long position at the current level of 1.1380. A stop loss order should be compulsorily placed below 1.1250. If the breakout happens as expected, then the profit can be booked at 1.2150. The risk to reward ratio for the trade is approximately 1:6.

EUR/USD Pair: May 12th 2016

EUR/USD Pair: May 12th 2016

A one touch call option contract or even a ladder contract can be purchased by a forex trader to benefit from the price rise. A strike price less than or equal to 1.1550 should be selected by the binary options trader. An expiry period of not less than three weeks is a must for the price movement to reach the desired level. In the case of a ladder contract, an expiry period in the third week of June is advisable.

About the Author

Riya Joshi

Riya Joshi Editor

Riya will providing you an insight in today's forex markets , which currencies are performing well and which ones look to be on the way down.

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