EUR/USD declines as market awaits key US employment data

The EUR/USD pair extended its losses for a third consecutive session, falling to 1.1591 on Tuesday. The downward pressure persists as investors await a backlog of delayed US economic data, expected to provide crucial signals on the Federal Reserve's interest rate path. The market's primary focus is the delayed September employment report, which traders will scrutinise for signs of a softening labour market.

The rhetoric from Federal Reserve officials remains mixed, contributing to the market's indecision. Several officials have recently expressed scepticism about the need for a December rate cut, citing persistent inflationary pressures. However, this was counterbalanced by Governor Chris Waller, who confirmed his support for a cut, and Vice Chair Philip Jefferson, who advocated for a gradual approach due to rising labour market risks.

This conflicting guidance has led to a repricing of rate expectations. Futures markets now imply only a 43% probability of a 25-basis-point cut in December, a significant decline from the odds priced at the start of the month. The US dollar has found broad support, strengthening against commodity-linked currencies like the Australian and New Zealand dollars.

Technical analysis: EUR/USD

Four-hour chart

On the H4 chart, EUR/USD has breached its growth wave channel at 1.1605, opening the path for a downward move. We anticipate an initial decline to 1.1564, followed by a technical pullback to retest the 1.1605 level from below. This retest is likely to present a fresh selling opportunity before the downtrend resumes towards the primary target of 1.1560. The MACD indicator confirms this bearish outlook. Its signal line, while above zero, is pointing decisively downward, indicating that selling momentum is overpowering any residual strength.

One-hour chart

On the H1 chart, the pair has broken downwards from a consolidation range around 1.1600, confirming the second leg of a bearish impulse. The immediate target for this move is 1.1560. Upon reaching this level, a corrective bounce back towards 1.1600 is a distinct possibility. The Stochastic oscillator supports this corrective view. Its signal line is rising from the 20 level towards the 50 level, suggesting that short-term downward pressure may be exhausted, paving the way for a temporary rebound.

Conclusion

The EUR/USD remains under pressure amid a strengthening US dollar and uncertain Fed policy. While conflicting comments from officials have created volatility, the overall technical structure is bearish. The breach below 1.1605 suggests further losses are likely, with an initial target at 1.1560. Any near-term rebounds towards the 1.1600/05 resistance zone are expected to be temporary, offering potential opportunities to re-enter the prevailing downtrend.