- The US Dollar slides across the board after the FOMC meeting and US data; attention turns to NFP.
- Despite the current slide, fundamentals still favor the Dollar.
- EUR/USD is testing a key resistance area; a break above 1.0670 could open the door to 1.0700.
The EUR/USD rose on Thursday boosted by a weaker US Dollar, but it could not break a key resistance level and lost strength. After the FOMC meeting and US economic data, market focus turns to the Nonfarm Payrolls report.
Data from the US on Thursday showed a softening labor market and a decline in the Unit Labor Cost index during the third quarter. These figures reinforce the perception that the Federal Reserve (Fed) has finished raising interest rates. This expectation has led to a decline in Treasury yields and boosted equity prices on Wall Street.
On Friday, the US will report the official employment report. The expectation is for an increase in payrolls by 180,000. Such a figure would suggest a healthy, balanced labor market. However, it would not change the expectation that the Fed is done with rate hikes. It would take another significant positive surprise to put the odds of another rate hike back on the table. A number reinforcing the "larger for longer" mantra could support the Dollar.
The current upward move in EUR/USD is occurring within a gradual correction, as the fundamentals still favor the US over the Euro area. If market sentiment deteriorates, bears will likely regain control.
EUR/USD short-term technical outlook
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On the daily chart, the pair is on the verge of posting its second-highest daily close in over a month, above 1.0600. However, the upside remains limited by the 55-day Simple Moving Average (SMA), which stands at 1.0664. A daily close above this level would strengthen the outlook for the Euro, while staying below that area suggests that further gains may be limited. On the downside, a daily close below 1.0506 could indicate that the correction is over, favoring consolidation ahead with a downside bias.
On the 4-hour chart, technical indicators show the Euro losing strength, with the Relative Strength Index (RSI) flattening and Momentum turning south. While above 1.0590, the pair could rise to test the critical downtrend line at 1.0665. However, a decline below this level would open the door to more losses, with a target of 1.0560. The 1.0520 zone is the vital support level.
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