Concerns about China’s economic hard landing and the return of worldwide deflation have sent the Japanese yen skyrocketing, as currency traders were selling the U.S. dollar and euro and moved their cash into the Japanese yen as a safe-haven trade. The economic data for the U.S. and eurozone are still a mixed bag. A big surprise last week was the U.S. non-farm payrolls report released by the Labor Department that came in at 174,000 for August, well below Wall Street economists' expectations of 222,000. The jobs reports missed expectations for three months straight. 

Although the U.S. unemployment rate fell to 5.1%, the lowest since early 2008, more than 261,000 people left the labor force and were not counted in August, pushing the labor force participation rate to a 38-year low at 62.6%, meaning 94 million Americans, 16 years and older, did not have a job and were not actively trying to find one.
The Institute for Supply Management (ISM) said last Tuesday that its U.S. Manufacturing Purchasing Managers index fell to 51.1 in August from 52.7 in July, the weakest reading since May 2013. Economists surveyed by The Wall Street Journal had expected the August PMI to hold steady at 52.7. The market is now questioning whether the U.S. economy is strong enough to take a Federal Reserve rate hike if they decide to move on September 17.

According to the latest poll by Reuters, 10 of 17 primary dealers, or the banks that directly deal with the Federal Reserve, now say they expect the Federal Reserve to raise rates in the fourth quarter of 2015 or later.

Last Thursday, the European Central Bank (ECB) downgraded its inflation forecast for next year to 1.1%, from its June forecast of 1.5%, and the eurozone GDP growth in 2016 to 1.7%, from its June forecast of 1.9%. ECB President Mario Draghi said the central bank could extend the 60 billion euro monthly bond-buying or quantitative easing (QE) program beyond its original deadline of September 2016. 

The European statistics agency Eurostat on Tuesday, revised their second estimate of eurozone gross domestic product (GDP) for April to June, to 0.4% from the first estimate of 0.3%. The agency also revised growth in the first quarter from 0.4% to 0.5%.

Wall Street analysts are debating what direction the EUR/USD should be heading next. Nomura Holdings Inc. has become less bullish on the dollar and changed its estimate for EUR/USD to 1.10 dollars per euro by year-end and 1.06 dollars per euro by June, from a previous call of 1.05 dollars per euro, according to Bloomberg. Barclays, on the other hand, now predicts 0.98 dollar per euro by the end of 2015 and 0.93 dollar per euro by mid-2016, from 1 dollar per euro and 0.95 dollar per euro, respectively.

As of September 1, there are 87,166 short positions of euro FX (CME:6E), traded on the Chicago Mercantile Exchange (CME), by leveraged funds, a week-over-week decrease of 10,170 short positions. This is compared to about 46,880 long positions, down 7,996 from the previous week, according to the Commitment of Traders (COT) data released by the Commodity Futures Trading Commission (CFTC) each Friday. 

Hedge funds have increased their net long positions about 2,174 contracts from the previous week, where euro FX contracts are traded in units of 125,000 euros. In the past four weeks, hedge funds have substantially reduced their short positions because on August 4, there were 114,546 short positions of euro FX and about 40,472 long positions.

Technically, the EUR/USD currency pair broke out the symmetrical triangle chart pattern as the yuan devaluation by the People’s Bank of China caught the hedge funds by surprise in mid-August. The EUR/USD was unable to break out the 1.14 dollars per euro level and pulled back to the trendline support of the symmetrical triangle with the near-term key technical resistance at 1.12 dollars per euro, or the 61.8% Fibonacci retracement level. In the event that a symmetrical triangle breakout is confirmed, the projected target for the EUR/USD is 1.19 dollars per euro.