EUR/USD trades cautiously above 1.1000 ahead of US NFP
- EUR/USD trades with caution above 1.1000 as the focus shifts to the US NFP.
- A sharp expansion in the US ISM Service Prices Paid has renewed fears of price pressures remaining persistent.
- ECB Schnabel remained concerned about the growing economic risks in the Eurozone.
EUR/USD trades in a tight range above the psychological support of 1.1000 in Friday’s European session. The major currency pair consolidates near 1.1030, while the US Dollar (USD) edges lower ahead of the United States (US) Nonfarm Payrolls (NFP) report for September, which will published at 12:30 GMT.
The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, drops slightly to 101.80. However, it holds this week’s sharp recovery from the yearly low near 100.10.
Investors will pay close attention to the US NFP report as it will likely influence the pace of the Federal Reserve’s (Fed) policy easing for the remainder of the year. Economists estimate that US employers hired 140K new employees, slightly lower than 142K in August. The Unemployment Rate is expected to remain steady at 4.2%.
Average Hourly Earnings are estimated to have grown at a slower pace of 0.3% month-on-month from 0.4% in August, with annual figures growing steadily by 3.8%.
Looking at the CME FedWatch tool, traders appear to have already adjusted Fed rate cut expectations for November. The 30-day Federal Funds futures pricing data shows that the probability of a further cut in interest rates by 50 basis points (bps) in November has declined to 33% from 53% a week ago. Fed large rate cut prospects for November waned sharply after the upbeat ADP Employment Change data for September and JOLTS Job Openings data for August.
Meanwhile, growing risks of inflation remaining persistent have also forced traders to pare high Fed jumbo rate cut bets. Thursday’s ISM Services PMI report for September showed that its component Prices Paid – which indicates a change in input cost – surprisingly expanded at a faster pace to 59.4. The Services PMI – which gauges activities in the service sector that accounts for two-thirds of the economy – grew at a robust pace to 54.9 from the estimates of 51.7 and the August reading of 51.5.
Daily digest market movers: EUR/USD remains on the backfoot amid dismal market mood
- EUR/USD trades sideways near 1.1030 in European trading hours after finding temporary support near 1.1000 on Thursday. The major currency pair strives to end its five-day losing streak. However, the pair could face more pressure as dismal market sentiment and the growing Middle East conflict would continue to weigh on risk-perceived assets, such as the Euro (EUR).
- Conflicts between Iran and Israel deepened after the killing of Hezbollah leader Hassan Nasrallah, in retaliation to which Tehran launched hundreds of ballistic missiles on military bases in the Tel Aviv region.
- Meanwhile, growing speculation for the European Central Bank (ECB) to cut interest rates again on October 17 has sent the Euro on the backfoot. Market expectations for ECB rate cuts have increased due to deepening Eurozone growth worries and a decline in the continent’s Harmonized Index of Consumer Prices (HICP) below the bank’s target of 2% in September.
- ECB board member Isabel Schnabel, who has remained an outspoken hawk, expressed concerns over growth risks in a speech on Wednesday. "We cannot ignore the headwinds to growth," Schnabel said. She also remained confident about inflation sustainably falling to 2% in a timely manner, with softening labor demand and further progress in disinflation.
Technical Analysis: EUR/USD seeks to gain ground near 1.1000
EUR/USD remains on the backfoot near the psychological support of 1.1000. The near-term outlook of the major currency pair has weakened as it trades slightly below the 50-day Exponential Moving Average (EMA), which stands at around 1.1043.
The shared currency pair continues to hold the breakout of the Rising Channel pattern in the daily chart, which occurred in the third week of August. A fresh downside would appear if the pair breaks below the upper line of the pattern.
The 14-day Relative Strength Index (RSI) has declined to near 40.00, suggesting a weakening of momentum.
Looking down, a downside move below 1.1000 will result in a further decline toward the 200-day EMA around 1.0900. On the upside, the 20-day EMA at 1.1090 and the September high around 1.1200 will be major resistance zones.
Euro FAQs
The Euro is the currency for the 19 European Union countries that belong to the Eurozone. It is the second most heavily traded currency in the world behind the US Dollar. In 2022, it accounted for 31% of all foreign exchange transactions, with an average daily turnover of over $2.2 trillion a day. EUR/USD is the most heavily traded currency pair in the world, accounting for an estimated 30% off all transactions, followed by EUR/JPY (4%), EUR/GBP (3%) and EUR/AUD (2%).
The European Central Bank (ECB) in Frankfurt, Germany, is the reserve bank for the Eurozone. The ECB sets interest rates and manages monetary policy. The ECB’s primary mandate is to maintain price stability, which means either controlling inflation or stimulating growth. Its primary tool is the raising or lowering of interest rates. Relatively high interest rates – or the expectation of higher rates – will usually benefit the Euro and vice versa. The ECB Governing Council makes monetary policy decisions at meetings held eight times a year. Decisions are made by heads of the Eurozone national banks and six permanent members, including the President of the ECB, Christine Lagarde.
Eurozone inflation data, measured by the Harmonized Index of Consumer Prices (HICP), is an important econometric for the Euro. If inflation rises more than expected, especially if above the ECB’s 2% target, it obliges the ECB to raise interest rates to bring it back under control. Relatively high interest rates compared to its counterparts will usually benefit the Euro, as it makes the region more attractive as a place for global investors to park their money.
Data releases gauge the health of the economy and can impact on the Euro. Indicators such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can all influence the direction of the single currency. A strong economy is good for the Euro. Not only does it attract more foreign investment but it may encourage the ECB to put up interest rates, which will directly strengthen the Euro. Otherwise, if economic data is weak, the Euro is likely to fall. Economic data for the four largest economies in the euro area (Germany, France, Italy and Spain) are especially significant, as they account for 75% of the Eurozone’s economy.
Another significant data release for the Euro is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period. If a country produces highly sought after exports then its currency will gain in value purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.
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