- EUR / USD is in standby mode and is trading near 1.1300 ahead of the latest official US employment report.
- The data will be viewed primarily in the context of how it affects expectations of a Fed rate hike in March.
- The euro did not react to the latest hotter-than-expected euro zone inflation figures for December.
The EUR/USD is on hold before Friday’s crucial US labor market report that analysts suspect will affect perceptions of whether or not the Fed will implement its first rate hike in December. The pair has been content so far in Friday’s session to languish within recent ranges close to the 1.1300 level and in recent hours has been swinging on both sides of its 21-day moving average at 1.1306. The recent EUR / USD trading patterns have been a dream for technicians who like to play range; Since late November, the pair has locked within a range of 1.1225 to 1.1385. But the pair has formed a pennant structure so far in 2022 that has increasingly squeezed the price action and appears to be at risk of a breakout that the next US jobs report could be the catalyst.
A bearish breakout could cause the pair to test the recent December lows at the 1.1200 low, while a bullish breakout could cause the EUR / USD to break above its 50-day moving average at 1.1354 and test the recent highs of the range. In the wake of this week’s decisively aggressive Fed Minutes that triggered a rise in US yields and a further widening of US rate differentials alongside a decent labor market report (defined as anything that keeps the Fed’s tightening plans intact), risks appear to be tilting lower for the pair. Indeed, many currency strategists have been disappointed by the dollar’s inability to gain substantial ground this week. Perhaps what the dollar bulls need is the “green light” for a solid labor market report.
The euro did not react to the latest flash estimate more recent than expected of inflation measured by the HICP in the euro zone in December, which showed an increase in headline inflation at a rate of 5.0% year-on-year compared to forecasts of a fall from 4.9% to 4.7%. But it’s worth noting that aggressive members of the ECB have been warning that if inflationary pressures continue to surprise to the upside, triggering a further improvement in the ECB’s inflation outlook, the case would be made for an earlier monetary tightening. Earlier in the week, euro money market prices implied that investors are expecting a 10 basis point rate hike from the ECB from October 2022. Analysts should note that further inflation surprises in the eurozone they have the room to lift the euro in the first quarter of 2022, especially against the yen, though perhaps not against the US dollar.
Technical levels
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