EUR/USD - ‘Potential Double Top’ ahead of US Non-farm payrolls release

It’s non-farm Friday again and this time the EUR/USD daily chart boasts of a potential double top pattern, which may come to fruition if the US job growth and wage growth figures better estimates.

The area around 1.1250 has proved to be a tough nut to crack in late May. The resistance remained intact as the sharp recovery from the low of 1.1109 (May 30 low) ran out of steam at a high of 1.1257 on Thursday. The pair ended on a weak note at 1.1211 levels.

Thus, an argument can be made that the pair could be forming a double top reversal pattern with a neckline level of 1.1109.

Eyes US non-farm payrolls & wage growth numbers

The non-farm payrolls data is expected to show the US economy added 185K jobs in May vs. 211k job additions seen in April. Note that the bar of expectations has been set high, courtesy of the ADP report released yesterday, which showed the private sector added 253K jobs in May. The Dollar has already strengthened somewhat in response to a strong ADP report.

Consequently, further gains in the greenback would require a big jump in the payrolls number and more importantly a better-than-expected wage growth data.

As discussed here yesterday, the USD is more sensitive to the long-duration treasury yields and thus responds positively to a steeper yield curve, which is dependent on inflation expectations.

A big jump in wage price inflation could yield a bigger move in the 10-year treasury yield and lead to a steeper yield curve and a strong US dollar. On the other hand, a weak wage growth number could end up pushing EUR/USD above the recent high of 1.1268.

EUR/USD Technical Levels

The spot was flat lined in Asia around 1.1215 levels. A daily close below 1.1109 (double top neckline) would signal the rally from the low of 1.0569 has ended. The spot could then proceed to test 1.10 (zero figure) and 1.0968 (double top target as per measured height method). On the higher side, a daily close above 1.1268 (recent high) would open doors for 1.1366 (Aug 2016 high) and 1.1428 (June 2016 high)

On the daily chart, a bullish golden cross (bullish 50-DMA & 200-DMA crossover); a lagging indicator; was confirmed on May 24. Since then the pair has struggled to take out 1.1250. The MACD has turned bearish, while the RSI is turning lower from the overbought territory.