German Unemployment Hammers Euro, Bad ADP Hits Stocks

With Spanish stocks at 9 year lows, the day started off in Europe on a sour note with the regions strongest economy (Germany) posting worse-than-expected unemployment numbers which immediately hammered the euro which dropped 100pips over a few hours before finding any bids. This should put increase focus on tomorrow’s ECB meeting with investors and traders watching remarks from the policy makers and any possible hint of a policy response.

Meanwhile, in the US, the ADP report came in way under the 170k expectations with a 119k print – its lowest increase since September 2011. The Dow& S&P declined with investors turning timid ahead of the Friday NFP report with the former shedding 10.75pts or .08% while the latter down 3.51pts or .25%.  While commodities got hammered, precious metals recovered some of the losses late in NY but still closed down on the day.

EUR/USD Flag Pattern Under Threat

Being one of the choppiest pairs from a price action perspective has been the EUR/USD lately, which has been a coin flip on a daily basis for the last 20 days whether it was going up or down for the day.  Out of the last 20 days of trading, only 4 days have had a trading range from high to low of 120pips or greater, with today being one of them. 

What is interesting to note is today’s low challenged the daily flag pattern which we talked about on April 12 in our forex price action setups post. Price has been confined in this range and we are not sure it will stay bottled up much longer. If bulls want to enter the market, there is a short-term opportunity on yesterday's lows targeting the 1.3200 level with a tight stop below. However, if the flag breaks and we have a daily close below it along with bearish impulsive price action to follow after the ECB meeting tomorrow, then we expect prices to test the bids (and the Chinese Central Bank propping up the pair) at 1.3050 and 1.3000.