The EUR/USD breaks its ascending triangle and it’s showing a pullback

Yesterday we identified an ascending triangle on the EUR/USD 4 hour chart, which had a very good probability of breaking out to the upside. After the release of the FOMC minutes, the Dollar weakened and we saw how the EUR/USD broke to the upside of the ascending triangle and it even went above the 1.2700 level. At the moment the pair is showing a pullback to the same 1.2700 level and this area could become a good support. It is possible to see a bounce from this zone to the upside; therefore, we must be attentive to a possible continuation of the bullish momentum of the pair from this area. 

The US Dollar loses its attractiveness

Many of us may be wondering why the Dollar has lost its bullish momentum if the fundamentals from the US have been coming out better than expected. The reality is that even though new jobs have been created in the United States and the unemployment rate has dropped, this has failed to provide higher wages for the American workers. Therefore, inflation is not a problem for the US economy at the moment and the FED is in no rush to raise its interest rates. Today’s FOMC minutes may show that the central bank is holding on raising rates until they see prices really going up. That is why most investors are preferring to stay on the sidelines and are not raising their bets on the greenback just yet.

Stock markets fall across the globe

The main stock market indexes have fallen across the world and they have printed strong drops due to the low and anemic global economic growth. The MSCI index of global stocks has fallen 1.1% so far. The S&P 500 has fallen 1.5% and the Dow Jones minus 1.6%. Treasury bonds have risen as investors seek the shelter of sovereign debt. Even though markets across the globe have fallen, investors prefer to seek shelter in US government bonds, because according to them this is the best bet that they have at the moment. The weak economic data out of Europe keeps hurting the Eurozone with the FTSEurofirst 300 index falling 1.5% as well.

Gold is at a key support level

Gold has been falling due to strength in the US Dollar and investors are preferring Dollar backed assets. Regularly, gold is used as a safe haven instrument during periods of high risk aversion, but due to the fact that the US markets are feeling optimistic about the US economy, which is showing a steady expansion, gold has lost its attractiveness as a safe haven investment. At the moment the precious metal is at a key support level around the 1182 Dollars per ounce and if the greenback continues being supported by upbeat fundamental data from the US, we could see further drops on gold. If a breakdown of that zone is confirmed, then the bearish momentum may accelerate on the precious metal. 

The Dollar Index at four year highs

The Non-Farm Payrolls report out of the United States has come out better than expected and the unemployment rate has fallen to six year lows, making the Dollar Index, which measures the strength of the greenback versus the six main currencies around the world, reach 4 year highs. The Euro has fallen to two year lows versus the Dollar and gold falls below the 1,200 dollars per ounce for the first time this year.

The US stock markets rallied on the news and the S&P 500 rose more than 1% and the European stocks rose almost 1%. It seems like now the US Federal Reserve has a stronger case to raise its interest rates sooner than most analysts expected. There is a higher probability now that interest rates will go up by the middle of next year.

The European Central Bank disappoints the markets

Throughout the week we have been waiting for the European Central Bank’s speech scheduled for today and even though it was suspected that the central bank was not going to give a lot of information regarding its future plans to try to stop prices from falling in the Eurozone, the markets felt disappointed when Mr. Draghi did not reveal which type of assets they are going to be buying in an attempt to avoid falling into deflation. The Euro strengthens after the announcement, but the lack of commitment from the central bank to implement a full-fledged quantitative easing program has hurt European stocks.

However, in the United States the main indexes try to correct a little bit its recent falls. Now all we can do is wait and see how tomorrow’s Non-Farm Payrolls report comes out, which it is expected to show that the US economy has created 216 thousand new jobs for the month of September. If the number comes out better than expected, then we may see the Dollar regain its bullish trend versus most of its major counterparts. 

The Dow Jones falls 1.4% on weak manufacturing

The Dow has fallen 1.4% or 238.19 points to close at 16,804.71 after the ISM Manufacturing Index came out worse than expected at 56.6 when the market was anticipating a reading of 58.6. The first case of Ebola was also reported in the US and this has hurt the Dow Jones Transportation Index. On the other hand, pharmaceuticals that make Ebola drugs have risen sharply on the news. Even though we have seen a big drop on the Dow Jones, the index may get a boost on Friday if the Non-Farm Payrolls report comes out better than expected.