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Thoughts from the Trading Floor 3rd February

The EUR/USD is trading just around the 1.3150 handle, having settled in range trade between the 1.3050 and 1.3200 handles. The market is interestingly poised, with the consolidation area that has formed over this week whether denoting that the ascent has stalled and the market is ready to resume its medium term down trend, or a consolidation phase before another leg higher. Thus this is a key area to be traded. If the market can break down below the 1.3050 handle, it should signal an extended run lower for the market. A move back below 1.2850 should then signal that the year’s lows become vulnerable. If the market can continue to consolidate above the 1.3050 handle, then a move through the 1.3238-60 area is likely to be breached and the steady upward trend would then continue.

The build up to tomorrow’s US employment situation report may be the catalyst for the break out of the Euro. The report should also give us a hint to the overall market sentiment. Normally, we would expect a weak jobs report to elicit a risk off type reaction and thus boost the USD vs. the Euro and vice versa if the report is strong. However an argument can be made, considering that the Fed is almost desperate to continue to ease monetary policy, that a weaker than expected Employment report may elicit USD weakness and thus boost risk assets. If this is the case and a weaker than expected jobs report causes USD weakness, it is likely that the Euro will continue to strengthen for an extended run higher, with the 1.3600-1.3700 area the likely target.