EUR Suffocated by Option Strikes Ahead of ECB

Most EUR traders are trying to keep their powder dry ahead of the ECB meet Thursday and Friday’s NFP release. The EUR/USD is finding it rather difficult to pull too far away from the psychological €1.2500 level despite the USD being better bid across the board. It’s rumored that there are large €1.2500 option strikes coming off tomorrow and Friday. If so, this will obviously have the market wanting to gravitate towards the option strike prices, in other words currently €1.2500 will continue to act like a magnet.

U.S Jobs looking strong

A combination of reports Thursday suggests that Friday’s non-farm payrolls is set to show a strong number. This morning’s U.S private ADP report added more workers last month than September; a positive sign that U.S employment growth is still on track for its best performance in a baker’s dozen-years.

The +230k monthly increase in employment, the most in four-months, follows a revised +225k gain in the previous month. The market consensus was looking for an advance of +220k. The better than expected headline print would suggest that the hiring gains reflect stronger U.S consumer spending, amidst a global slowdown, mostly powered by a fall in energy prices. With an improvement in consumer demand, individuals will most certainly require a faster pace of wage growth to support increased household purchases and perhaps reason enough for the Fed to change tact at the last FOMC meet and focus on the robust employment environment in the U.S.

U.S NMI employment index looking good

The U.S ISM non-manufacturing index fell to 57.1 in October, a second consecutive monthly drop and the lowest reading in four-months. Digging deeper and focusing on the employment index, it rallied for its six-consecutive month (+1.1 points) to 59.6, the highest print in nine-years. Despite the impressive print, it does not necessarily have a strong correlation to Friday’s NFP number. Only 10 out of the 18 industries reported showed an increase in employment last month.

No matter what, both reports combined would suggest that U.S employment should stay strong for October, which can only be good news for Friday’s payrolls report. Market consensus is expecting a payrolls print of + 223k last month, while the jobless rate is expected to hold steady at a six-year low of 5.9%. A big NFP print should allow the 18-member single currency to resume its current slide. This will allow the long term EUR bear to again refocus their sights on July’s 2012 low of €1.2042.

Obviously a disappointing headline print will scare the weaker US dollar ‘bulls’ to consider unwinding some of their long USD positions. The EUR’s first real resistance point will be this week’s high EUR print (€1.2575), achieved twice over the past 24-hours. The rumored ECB discord yesterday managed to push the single unit, not once, but twice to the desired spec-selling levels atop of €1.2565-75. The second run-up in the Asian session was met by a heavier hit from speculative selling, buoyed by the U.S. midterm election results, and this morning’s tepid Euro PMI data.

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Dean Popplewell

Dean Popplewell

Vice-President of Market Analysis at MarketPulse
Dean Popplewell has nearly two decades of experience trading currencies and fixed income instruments. He has a deep understanding of market fundamentals and the impact of global events on capital markets. He is respected among professional traders for his skilled analysis and career history as global head of trading for firms such as Scotia Capital and BMO Nesbitt Burns. Since joining OANDA in 2006, Dean has played an instrumental role in driving awareness of the forex market as an emerging asset class for retail investors, as well as providing expert counsel to a number of internal teams on how to best serve clients and industry stakeholders.
Dean Popplewell