Open EUR/USD positions, based on the report on the U.S. employment
Some investors wanted to close long positions for the U.S. dollar, to be on the safe side ahead the important report on the U.S. employment in September will be released; and so, the EUR/USD pair is up above figure 15 bottom. Bloomberg experts expect 185,000 of new jobs, the unemployment rate to be down to 3.8% (the rate was at this level 1969 last time) and a slow in average earning growth to 2.8% Y-o-Y, from 2.9% Y-o-Y (it is not so worrying as the seasonal factors resulted in the indicator surge in September, 2017, so the core inflation will be high). If actual data aren’t as positive as they are expected, there will be a need to take the profit for almost 3-percent EUR/USD dive during the last two weeks.
The main driver, sending the greenback up in late September, became a surge of the U.S. Treasury yield. 10-year yield has hit the highest level since 2011 due to strong macro-economic statistics; 30-year yield is at its highest level since 2014. Investors, encouraged by Jerome Powell’s speech that the U.S. economic expansion can go on endlessly, were selling bonds all over the world. According to Bloomberg Barclays. Multiverse, global yield is up at 4-year high, 2.44%. The index monitors securities worth $52 trillion.
Dynamics of U.S. dollar and 10-year Treasury yield
Source: Bloomberg
According to UBS, the market positively assess the U.S. economic cycle; however the uncertainty around foreign economic cycles makes investors carefully follow the bond rates in the Euro-area, Japan, the U.K. and other countries. The increase in the European bond yields amid the talks about normalizing the ECB monetary policy and quitting QE will let EUR/USD bulls go ahead. Especially since the scaling down QE encourages European investors to withdraw their funds from the USA. They have bought the U.S. debt securities worth almost half a trillion dollars since 2015; however, they started cutting down the reserves in the second quarter (-€5.8 trillion).
Dynamics of net euro area buying of the US debt securities
Source: Financial Times
Reuters experts are also skeptic about continuous USD rally. The median forecast of over 70 analysts suggests the euro should be up at $1.16 in three months and at $1.22 during a year. ING claims that Italian political risks have been already included into the euro price; so the conflict easing will provide a good opportunity to buy it. According to 30 experts, the euro low is around 1.14.
In my opinion, the high core inflation may flatten the U.S. wages growth in September; it can be a good reason to break through the resistance at 1.154 and drive EUR/USD higher. Otherwise, strong statistics in the U.S. employment and continued uncertainty over Italy will encourage the euro bears to regain the control.