- EUR/USD has stabilized near 1.0900 following Thursday's sharp decline.
- ECB policymakers try to convince markets of the hawkish outlook.
- Annual wage inflation in the US is forecast to rise to 4.9% in January.
EUR/USD has gone into a consolidation phase at around 1.0900 early Friday after having declined sharply on Thursday. January jobs report from the US could help the pair find direction ahead of the weekend.
Following the impressive rally witnessed on Wednesday, EUR/USD reversed its direction on Thursday. Although the European Central Bank (ECB) raised key rates by 50 basis points as expected and noted that it intends to go for one more 50 bps increase in March, ECB President Christine Lagarde's comments weighed on the Euro.
Lagarde noted that they will evaluate the economic developments following the next rate hike and said that inflation risks were more balanced. When asked about the possibility of additional rate actions after March, Lagarde refrained from committing to any move, making it difficult for the Euro to continue to outperform its rivals.
Early Friday, ECB policymaker Gediminas Simkus said that a rate cut this year was not likely. On a similarly hawkish note, policymaker Peter Kazimir noted that he didn't see that a March rate hike would be the last. These comments seem to be helping EUR/USD limits its losses for the time being but investors refrain from committing to a steady recovery ahead of the high-tier data releases from the US.
Investors expect Nonfarm Payrolls (NFP) in the US to rise by 185,000 in January following December's better-than-expected 223,000 growth.
In December, the upbeat NFP failed to provide a boost to the US Dollar as the underlying details of the jobs report revealed that annual wage inflation, as measured by the Average Hourly Earnings, declined to 4.6% from 5% in November. In January, this figure is forecast to rise to 4.9%.
Unless there is a big NFP surprise, the wage inflation component is likely to drive EUR/USD's action ahead of the weekend. An unexpected decline in the annual print could trigger a fresh US Dollar selloff and allow EUR/USD to push higher. On the other hand, a reading at or above 5% could provide a boost to the US Dollar and force the pair to stretch lower in the American session.
The ISM's Services PMI report for January will also be featured in the US economic docket. The Price Paid Index of the survey is expected to decline modestly to 65.5 from 67.6 in December while the headline PMI is seen staying unchanged at 46.6. In case this publication shows that input price pressures in the service sector softened at a stronger pace than expected, the US Dollar could lose interest and vice versa.
EUR/USD Technical Analysis
EUR/USD manages to hold above 1.0900, where the lower-limit of the ascending regression channel, 50-period Simple Moving Average (SMA) and the Fibonacci 23.6% retracement of the latest uptrend align. In case this levels is confirmed as support, the pair could target 1.0950 (mid-point of the ascending channel), 1.10000 (psychological level) and 1.1035 (multi-month high set on February 1).
On the downside, a four-hour close below 1.0900 could bring in additional sellers and open the door for an extended slide toward 1.0860 (100-period SMA) and 1.0820 (Fibonacci 38.2% retracement).
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