On Thursday, market participants who trade euros had all of their attention focused on the 10 year German bonds. Have a look at the graph below. When the bond yield hit 0.796%, the euro/dollar rate set a maximum of 1.1391. As soon as demand for the bonds increased, their yield began to fall. There started to be a fixing below the U3 of long positions on the euro. By the American session, the euro/dollar had fallen to 1.1294.
10 year German bonds
Downward pressure on the euro increased after the release of US labor market data. In a week, the number of initial unemployment benefit applications increased by 3,000 to 265,000, whilst a growth to 280,000 was expected. On this news the euro/dollar rate dropped to 1.1237 and following which the pair went into a correctional phase.
In Asia on Friday the euro/dollar rate fell to 1.1204 on the back of a reduction in the euro/pound cross rate; caused by preliminary results of the UK parliamentary elections. It looks as if the Conservatives and their party leader, David Cameron, will have a majority in the House of Commons with around 320 seats from the 650 available; the Labour party looks set to have around 240 seats.
The pound renewed its rally since, according to surveys, the Conservatives and Labour were set to have an equal number of seats in parliament.
The key event that the market is waiting for on Friday is the release of a report on the American labor market. The report will be out at 15:30 EET. Forecasts reckon that the unemployment level will drop from 5.5% to 5.4% and that job creation outside of the agricultural sector (NFP) will have created 224,000 jobs in April, against 126,000 the month previous.
The ambiguity and uncertainty before the release of the payrolls is being compounded by the US Fed. Part of which has announced that the US base rate could be increased at any of the Committee’s open market meetings. The other part has said that there’s no need to raise rates this year.
I made a forecast for up to 15:30. The euro/dollar rate corrected to the trend line. A fall in the euro at the 157th degree. I reckon that, due to a correction on the euro/pound cross, the key pair will return to 1.1255. By the time the payrolls are out it’ll be around the 1.1240 level.