Euro Rebounds off 23-Month Lows as Weak NFPs Slam US Dollar

DailyFX   |  June 1 2012 1:14 EDT

A dismal print on May non-farm payrolls fueled a surge in volatility with the greenback coming under pressure as the euro took a reprieve from the recent sell-off. Here are the key level in play on the EURUSD andUSDCAD.

Daily Winners and Losers

The euro is the strongest performer against the greenback at the close of European trade with an advance of 0.44% on the session. Key US employment data today grossly missed consensus estimates with non-farm payrolls coming in at just 69K while the unemployment rate rose to 8.2% from 8.1% according to the Bureau of Labor Statistics. The report fueled speculation for further Fed easing with the greenback paring early gains on the back of the print. The EUR/USD briefly dipped below soft support at the 2008 lows at 1.2330 before reversing course to trade slightly higher on the session. Topside daily resistance stands at the 61.8% Fibonacci extension taken from the October and February crests at 1.2485 and is backed closely by the January lows at 1.2620. Downside objectives are now held at the 78.6% extension at 1.2215.

The scalp chart shows the EURUSD continuing to trade within the confines of a descending channel formation dating back to the start of May with the pair holding just below the 61.8% Fibonacci extension taken from the May 1st and 21st crests at 1.2425. Soft support rests at 1.2360 backed by the 78.6% extension at 1.2320 and channel support. A break below this formation risks substantial losses for the euro with subsequent floors seen at 1.2250 and the 100% extension at 1.2185. Topside advances remain capped by channel resistance (currently around 1.2460) with a breach above this trendline eyeing targets at the 50% extension at the 1.25-figure, 1.2550, and the 38.2% extension at 1.2575. While our medium-term outlook on the single currency remains weighted to the downside, it’s important to note that a correction of some magnitude remains within the realm of possibilities with a move above 1.2485 (61.8% Fib ext on daily chart) offering further conviction on an interim directional bias. For a complete outlook on the EUR/USD including detailed scalp targets, refer to this week’s Scalp Report.

Key Levels/Indicators

The Canadian dollar is the weakest performer at noon in New York with a decline of more than 0.45% on the session. Weaker than expected GDP data out of Canada and persistent weakness in crude prices saw the loonie come under substantial pressure today, with the USD/CAD breaking above 23.6% Fibonacci extension taken from the October and November highs at 1.0345 before encountering soft resistance at 1.0440. Our medium-term objective on the pair remains the November highs just above the 1.05-figure with a pullback of some magnitude likely after advancing eleven of the past fourteen sessions on a breach above the confluence of the 200-day moving average and trendline resistance dating back to the October highs. Note that although the daily relative strength index remains in over-bought territory above 70, the oscillator has yet to test the highs made back in October when the USD/CAD made fresh yearly highs above the 1.06-handle.

The scalp chart shows the USD/CAD holding within the confines of an ascending channel formation after testing channel resistance early in the session. Interim support rests at the 50% Fibonacci extension taken from the May 11th and 29th troughs at 1.0375 backed by 1.0350, the 38.2% extension at 1.0335 and 1.0310. A break below the confluence of the 23.6% extension and channel support at 1.0285 risks a more substantial correction for the pair with such scenario eyeing targets at 1.0260 and this week’s low at 1.0206. Interim resistance stands at the 61.8% extension at 1.0420 and is backed by channel resistance, currently around 1.0440.

Key Levels/Indicators

---Written by Michael Boutros, Currency Strategist with DailyFX.com

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