Summary:

• EURUSD, DE 30 paint reversal signals on the D1 chart
• the NFP report could be relevant for those markets
• Investors are mostly interested in the wage data

The most popular traders’ report is just around the corner. The NFP report for the final month of the last year will be released on Friday at 2:30 BST and could be treated as a potential lifeline for the US dollar. Let’s present our preview and take a look at reversal patterns on EURUSD and DE30. 

It’s wages that count

The NFP headline number measure change in non-farm employment in the US but at this stage it is not what really matters. Investors are well aware that employment has fully recovered from the crisis of the past decade and that unemployment rate continues to be very low. The reason behind a recent USD weakness is that many on the market fret that even this will not warrant a return of inflation to the Fed’s target and that could discourage the new FOMC president from rising rates. Therefore the focus is only on inflation and wages. Wage growth has been modest as of late (2.5% y/y) and this is not expected to change materially. However, any deviation from the consensus  (+0.3% m/m, +2.5% y/y) could affect the dollar and thus EURUSD and DE30 (via EURUSD). 

A pick-up in wages is a precondition for a lasting recovery in inflation. Source: Macrobond, XTB Research 

EURUSD – a failed attempt at 2017’ highs

EURUSD could not be in a more interesting spot ahead of the report. The pair saw a correction in October and November after shooting to nearly 1.21 earlier last year but then surged higher towards the end of the year again. As a result saw a test of 2017’ highs and so far it has failed. Bears were able to counterattack on Wednesday and they drew a bearish engulfment  – a reversal pattern, especially at the key resistance we are at. This has a potential to become a large double top but obviously sellers need to continue their push in days to come. Any impact of the NFP report can be decisive at this point. 

EURUSD has painted a bearish engulfment at the key resistance. Source: xStation5 

DE30 – a surge after a failed break lower

The German DE30 (DAX30 futures underlying) has been struggling towards the end of the year even as Wall Street indices stormed higher. The reason for it is the euro. Many European stocks are exporters and an increasingly strong euro is unwelcome development for them. Therefore DE30 and EURUSD are closely linked. Just as the EURUSD drew a bearish engulfment, DE30 saw a pinbar on a failed break lower from a consolidation. This is a very strong pattern and what is more, it acts in line with a longer term trend that is still bullish. DE30 will track a reaction of the EURUSD to the US data and could move accordingly. 

DE30 saw a pinbar that turned out to be a trap for bears. Source: xStation5