EUR/USD Consolidating before next major move
The EUR/USD pair is being influenced by a variety of factors, namely risk sentiment arising from developments on the Chinese stock market. We are holding a cautious view that the EUR/USD is likely to trade lower in the coming sessions.
The EUR/USD has been trading within a range it was confined to in the aftermath of the non-farm payrolls report on Friday. After the U.S. labor department announced that 173,000 jobs were created in August the market went on a wild ride. The pair skyrocketed towards 1.1186 and then dropped back down to 1.1088.
Unemployment decreased by 0.2 percent, to 5.1 percent, which is increasing the odds that the Federal Reserve will raise interest rates at its next meeting in less than 10 days. We are less convinced than the market that the event will be used by the Fed to hike rates, but still are bullish on the USD.
How to trade
Looking at the charts we clearly see a pattern of consolidation with a major trend line acting as a magnet for prices to stay range-bound. We would be looking to buy daily calls today if the EUR/USD falls towards 1.1080 and daily puts if prices rise towards the 1.1185-90 area.
In the coming days, the pair is more likely to come under more pressure, yet that will be conditional on the market developments. The most important market events this week are mostly outside of Europe and the U.S.
With the European Central Bank (ECB) committing to do more monetary easing if necessary, buying the EUR/USD is becoming less compelling by the day. However if the Federal Reserve doesn't raise interest rates an adjustment in the sentiment towards the U.S. dollar is warranted.