EUR/USD pulls back from its weekly highs after disappointing Canadian jobs data and falling yields

• Euro weakens as bond yields fall; remains supported by monetary policy divergence.
• The ECB will tighten monetary conditions despite the recession in the Eurozone.
• The upcoming US CPI data could set the stage for a surprise at the FOMC meeting.

The pair EUR/USD reversed course after Thursday’s US jobs report justified the Federal Reserve’s (Fed) view of skipping a rate hike. In addition, the latest data from Canada pointed to a weakening labor market, which is consistent with recent US jobless claims. EUR/USD is trading at 1.0753, down 0.26%.

Divergence between Fed and ECB monetary policies were supportive of EUR/USD strength

The euro suffers from the fall in bond yields across the bloc. This weakened the common currency, which was unable to hold on to Thursday’s gains. EUR/USD held on to the 20-day exponential moving average at 1.0772, despite lifting the pair from the US on Thursday. Data from the US Department of Labor showed the US job market easing as more Americans filed for unemployment, in its highest jump since October 2021. But, the main driver of the North American session is the Canadian employment data.

Statistics Canada revealed that the economy shed 17,300 jobs in May, well below forecast growth of 23,200. In addition, the Unemployment Rate went from 5.1% to 5.2%, a sign of weakness in the labor market.

Although the EUR/USD pair is pulling back from weekly highs, it is expected to continue to strengthen as two central banks diverge on their monetary policy stances. For the next week, the Federal Reserve is expected to keep rates unchanged in the 5.0-5.25% zone. The European Central Bank (ECB) is likely to raise rates towards 3.50%, despite the fact that the Eurozone (EU) reported a technical recession after posting consecutive quarters with negative GDP. However, the ECB will continue to tighten monetary conditions, as stressed by Isabel Schnabel, a member of the ECB Governing Council, who stated: “The costs of doing too little (in monetary tightening) continue to outweigh the costs of doing too much.” .

upcoming events

On Tuesday of next week, the EU agenda will include German inflation data and the ZEW index of economic sentiment. In the United States, the consumer price index (CPI) for May is estimated at 4.1% year-on-year, while the core CPI forecast stands at 5.2%. Higher CPI readings could set the stage for a surprise at the FOMC meeting next week.

EUR/USD Price Analysis: Technical Perspective

The EUR/USD pair is trading sideways, albeit slightly to the downside, as the 20, 50 and 100 day EMAs sit above the current exchange rate, providing a solid area of ​​resistance above the 1.0767 area. . Based on the price action, EUR/USD should probably test the June 7 high turned support at 1.0739 before falling towards the 1.0700 figure, ahead of the June 8 low at 1.0692. A break of the latter and EUR/USD will challenge the 200 day EMA at 1.0688.