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EUR/USD weakens while USD strengthens after strong positive US NFP report.

  • EUR/USD falls from 1.0900 as the upbeat US NFP report for May increases the attractiveness of the US dollar.
  • The US NFP report suggests that labor market conditions have tightened further.
  • The ECB began its policy easing campaign but refrained from committing to a predefined interest rate path.

EUR/USD experiences an intense sell-off and falls near 1.0840 in the American session on Friday, as the US Non-Farm Payrolls (NFP) report for May has indicated that labor demand and wage growth were stronger than expected. The jobs report showed new payrolls added by U.S. employers were higher at 272,000, compared with expectations of 185,000 payrolls and the previous release of 165,000, revised down from 175,000. However, the unemployment rate increased to 4.0% from estimates and the previous release of 3.9%.

The higher-than-expected payroll numbers are expected to dispel doubts about declining labor demand that deepened after recent employment-oriented indicators suggested the labor market is loosening. JOLTS job postings data for April and ADP job change for May were weaker than expected. Additionally, initial jobless claims for the week ending May 31 were higher than estimates, suggesting some pressure has been released from the labor market.

Meanwhile, average hourly earnings, which measure wage inflation, accelerated to 4.1% from expectations of 3.9% and the previous release of 4.0%, revised up from 3.9% year-on-year. On a monthly basis, the wage inflation measure grew at a robust pace of 0.4% versus the consensus of 0.3% and the previous reading of 0.2%. This has deepened fears that inflation will remain persistent, which will have a negative influence on market expectations that the Federal Reserve (Fed) will begin to reduce interest rates from its September meeting.

Daily Market Summary: EUR/USD Falls, US Dollar Soars

  • EUR/USD faces a sharp sell-off from 1.0900 as a strong US NFP report has indicated that the Fed may not consider cutting interest rates from the September meeting.
  • Across the Atlantic, the Euro weakens after the European Central Bank (ECB) cut interest rates by 25 basis points (bps) as expected on Thursday.
  • The ECB cut its key interest rates for the first time since 2019, as officials were confident about inflation’s progress towards the desired rate of 2%. All officials voted in favor of the rate cut decision, except politician Robert Holzmann, who dissented. However, ECB President Christine Lagarde refused to commit to a specific interest rate path, saying the battle against inflation is far from over and price pressures are expected to remain at current levels. this year. The ECB will remain dependent on data, she said.
  • The latest inflation projections from the ECB staff indicate that the Eurozone’s annual core inflation will average 2.8% in 2024, 2.2% in 2025 and 2.0% in 2026, slightly above previous forecasts.
  • The ECB was expected to remain data dependent as the recent Eurozone Harmonized Index of Consumer Prices (HICP) report showed that annual headline and core inflation grew more than expected. Economic growth in the first quarter was also stronger, at 0.3%, showing that the technical recession in the second half of 2023 was mild.

Technical Analysis: EUR/USD weakens to 1.0830

EUR/USD falls vertically from the 1.0900 round level resistance after strong US NFP data dampened hopes that the Fed will cut its key interest rates from September. At the moment, the major currency pair seems unable to break the neck line of the inverted head-shoulder (H&S) pattern, which is marked from the April 9 high at 1.0885. A breakout of this pattern could result in a bullish reversal.

The short-term outlook remains positive due to a golden cross formation, a bullish crossover of the 50-day and 200-day exponential moving averages (EMAs) near 1.0800. However, uncertainty over the same cannot be ruled out.

The 14-period RSI has fallen into the 40.00-60.00 range, suggesting that the momentum, which was leaning towards the upside, has faded for now.

Looking up, the major currency pair is expected to extend its gains towards the March 21 high around 1.0950 and the psychological resistance of 1.1000 if it breaks decisively above the round resistance level of 1.0900. However, a downside move below the 200-day EMA at 1.0800 could push it into a bearish trajectory.

economic indicator

Decision on ECB deposit rates

The deposit rate, announced by the European Central Bankis the interest rate paid on excess liquidity that credit institutions can deposit overnight in an account of a national central bank that is part of the Eurosystem.

Source: Fx Street

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