EUR/USD Turns Cautious after Friday’s NFPs Boost

  • EURUSD
    (${instrument.percentChange}%)

EUR/USD Analysis

Friday's data showed further signs of cooling in the US labor market, as the 187,000 jobs created in July, marked another downside surprise and the second smallest addition since the December 2020 negative print. This reading along with easing inflation, supports chances of a Fed pause in September. Markets believe that the terminal rate has already been reached and look for cuts as early as Q1 of the next year, according to CME's FedWatch Tool [1].

EUR/USD rose after the report, which keeps 1.1276 in play, but does not inspire confidence at this stage for challenging it.

On the other hand, unemployment dropped for third straight month, returning closer to the five-decades low, while wages remain elevated. At the same time, the economy continues to perform better than expected, creating pressure for more monetary restrain. The Fed's projections imply another 25 basis points hikes [2], while Ms Bowman (voter) struck a clear hawkish tone after the NFPs, speaking of the need for "additional rate increases". [3]

ECB President Lagarde meanwhile, had recently opened the door to a September pause [4], in dovish shift that essentially negates the policy differential that had boosted the common currency in the past. EUR/USD faces renewed pressure today and remains exposed to the 200Days EMA (at around 1.0790), although a breach of 1.0634 would need a strong catalyst.

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Global monetary policy has entered a highly uncertain phase, where every piece of data matters. As such, Thursday's CPI inflation update will be significant and could determine the next leg of the pair. Both Fed Chair Powell and ECB President Lagarde touted their data dependency and refrained for offering any forward guidance in regards to their next steps.

Nikos Tzabouras

Senior Financial Editorial Writer

Nikos Tzabouras is a graduate of the Department of International & European Economic Studies at the Athens University of Economics and Business. He has a long time presence at FXCM, as he joined the company in 2011. He has served from multiple positions, but specializes in financial market analysis and commentary.

With his educational background in international relations, he emphasizes not only on Technical Analysis but also in Fundamental Analysis and Geopolitics – which have been having increasing impact on financial markets. He has longtime experience in market analysis and as a host of educational trading courses via online and in-person sessions and conferences.

References

1

Retrieved 06 Aug 2023 https://www.cmegroup.com/markets/interest-rates/cme-fedwatch-tool.html

2

Retrieved 06 Aug 2023 https://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20230614.pdf

3

Retrieved 06 Aug 2023 https://www.federalreserve.gov/newsevents/speech/bowman20230805a.htm

4

Retrieved 16 Jul 2024 https://www.ecb.europa.eu/press/pressconf/2023/html/ecb.is230727~e0a11feb2e.en.html

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