The euro opened the day on a high note as buyers are steadily pushing the EUR/USD pair higher. This uptrend is associated with the weakness of the US dollar which sank due to the jobs data in the US. The number of people employed in the US non-agricultural sector according to the ADP report turned out to be lower than expected. If not for the manufacturing PMI, which rose in August from 59.5 to 59.9, the US dollar could have dropped even deeper.
In today's economic calendar, there are two reports to pay attention to: factory orders for July and weekly statistics on the labor market. However, this is unlikely to cause any movement in the market. At the moment, traders are in a wait-and-see mode as they refrain from buying the pair ahead of the Nonfarm payrolls report which is due tomorrow.
According to technical analysis, the quote is moving upwards along the ascending channel. If risk sentiment prevails, the EUR/USD bulls will pass the area of 1.1870. If the pair closes above 1.1890, this will indicate further bullish strength that may push the quote higher to 1.2000 and above.
If the euro does not receive proper support from buyers, then tomorrow a downward correction may start before the publication of Nonfarm payrolls. Most analysts predict a positive scenario for EUR/USD.
Experts at Societe Generale believe that the euro can take advantage of the dollar's weakness and will test the psychologically important level of 1.2000 in the coming weeks. However, this will happen only amid a clear bearish signal for the US dollar. First, we need to wait for the nonfarm payrolls report. Next, the Fed should set the timing for the rate hike which is more likely to happen in 2022 than in 2021.
Commerzbank supports the same view. The euro has recently completed a falling wedge reversal pattern, and EUR/USD will continue to rise in the near future. It is first expected to test a high of 1.1909 reached in July. Afterwards, it may extend its upward movement to the March high of 1.1990-1.2005.
Analysts also consider a different scenario. In case of a decline, the price will touch the previous low of 1.1740 which offers short-term support. The initial support is located at the March low of 1.1704, followed by the recent low of 1.1665 and then 1.1576.
In general, EUR/USD is trading bullish on Thursday, but given the release of Nonfarm payrolls, this trend is unlikely to last long. The euro is slow and is creeping towards the level of 1.1900-1.1920. This is where the volume of short positions has already increased.
Against this backdrop, analysts suggest two main scenarios for day traders. Both of them are short-term and will remain relevant until the release of the main report on the US labor market on Friday.
The first scenario: buying the euro when the price breaks through the local high of 1.1857 with the target of 1.1895 and with a stop loss at 1.1830.
The second scenario: selling the pair from the level of 1.1900 with a tight trailing stop towards 1.1740 and a stop loss above 1.1950.
The US dollar still has some growth potential since the current downtrend is mainly caused by anticipation of the Nonfarm payrolls release. There are several factors on the side of the dollar in the coming days.
The first factor is potentially strong labor market data for August. This will confirm the intention of the Fed to taper its stimulus program in September. This will definitely launch a new rally in the US dollar.
The second factor is connected with liquidity which is becoming lower. The US Treasury cannot extend its borrowing in order to reach the balance of $800 billion. As a rule, during an active auction placement, purchases of the US currency increase.
The third factor is the Fed's monetary plans. Although the American regulator is hesitating, it still goes one step ahead of its colleagues such as the ECB, the Bank of Japan, and the Bank of England. This makes the greenback especially attractive for purchases.
It is possible that massive profit-taking may begin in the coming days or weeks. This will further support the dollar, especially at the moment of risk aversion.
