Today economic data in the U.S. was mixed, so the dollar was once again on the ropes. A favorite indicator for many economists, Jobless Claims for last week continued its positive trend after printing at 308,000, much better than the forecast of 315,000. Expectations are also for furloughed workers not to file a claim in next week’s report as they would have to pay the government back once the political impasse is resolved. The prior week was also slightly higher to 307,000 from 305,000. Many traders will emphasize the jobless claims figure this week as we will not see tomorrow’s NFP number due to the government shutdown.
The other key report was not positive as the Services Sector starts to cool down, adding fear to the potential recession that could fall onto the U.S. economy. The ISM index fell to 54.4 from 58.6 and this poor reading pretty much confirms no taper next month.
The daily chart shown above highlights the recent wave of U.S. dollar weakness as the U.S. government shutdown lingers. While a default in US debt would be devastating, expectations are for Congress to not allow that to happen, but perhaps they will wait till the last moment possible to reach a deal. Price action has been fairly bid for the euro, however not very significantly despite the Fed’s delay last month in tapering, and the relatively better data and political situations from Europe.
Currently price action on EURUSD is coming close to overextending this latest rally. The formation of multiple reversal patterns are emerging around the 1.3670 region. After a new 8-month high, euro bears are afraid to go against this momentum, especially after a clean pennant surge higher. If tomorrow produces a sideways trading session, the weekend may provide an opportunity for this government standoff to end. If a pullback occurs, downside targets remain at 1.3420. If 1.3740 is taken out, the next major resistance level is 1.3900.
