EUR/USD Forecast: Euro rally could lose momentum on US jobs report

EUR/USD has gained more than 100 pips on Thursday and extended its rally to a fresh three-week high above 1.1470 during the Asian trading hours on Friday. Ahead of the January jobs report from the US, the pair is staying relatively quiet as investors want to see at what pace wages have grown before betting on further dollar weakness.

The European Central Bank (ECB) left its policy settings unchanged following the February meeting as widely expected. The initial reaction to the ECB's policy statement caused the shared currency to face modest selling pressure.

During ECB President Christina Lagarde's presser, however, the euro registered impressive gains amid the apparent hawkish tilt in her remarks on the policy outlook. When asked about the possibility of a rate increase in 2022, Lagarde did not repeat her previous comment that interest rates were not likely to increase in 2022. She also sounded more cautious than usual on the inflation outlook as she noted that prices were seen staying high for longer-than-expected. 

In the second half of the day, the US Bureau of Labor Statistics will release the labour market report for January. Nonfarm Payrolls (NFP) are expected to rise by only 150,000 after increasing by 199,000 in December. Earlier in the week, the ADP report revealed that employment in the private sector declined by 301,000 in January.

A negative NFP print should cause the dollar to continue to weaken against its rivals. In case the NFP comes in higher-than-expected, market participants will pay close attention to the wage inflation data. On a yearly basis, Average Hourly Earnings are forecast to rise by 5.2%, compared to 4.7% in December. Strong growth in wages could help the greenback find some demand and limit EUR/USD's upside ahead of the weekend.

EUR/USD Technical Analysis

The 20-period SMA on the four-hour chart is about to make a bullish cross above the 200-period SMA, which could be taken as a sign that buyers remain in control of EUR/USD's action. The Relative Strength ındex (RSI) indicator on the same chart, however, is holding above 70, suggesting that the pair might need to make a technical correction before stretching higher.

On the upside, 1.1480 (static level) aligns as the first resistance before 1.1500 (psychological level) and 1.1550 (static level). Supports are located at 1.1400 (psychological level), 1.1360 (static level) and 1.1320 (200-period SMA, 100-period SMA).