EUR/USD Forecast: Temporary calm before two storms

EUR/USD kicks off the first jobs Friday in 2019 in a stable state after the flash crash storm. The plunge to 1.1310 proved to be a knee-jerk, and the world's most popular currency pair is back to "hugging" 1.1400. 

The greenback weakened on Thursday due to three factors: concerns about the Chinese economy were joined by a considerable drop in the forward-looking ISM Manufacturing PMI. The plummet to 54.1 points represents a sharp slowdown in early 2019. 

Perhaps more importantly, FOMC member Robert Kaplan said he would not support rate hikes in the next "couple of quarters" and also opened the door to reversing the balance sheet runoff, or Quantitative Tightening. After the recent rate decision, Fed Chair Jerome Powell said that the reduction of the balance sheet would continue "autopilot." 

Was Kaplan speaking for himself or has Powell changed his mind? The world's most powerful central banker will speak at 15:15 GMT in Atlanta alongside his predecessors Yellen and Bernanke. His speech may steal the show from the Non-Farm Payrolls.

The NFP carries expectations for an increase of 177,00 jobs in December, and real expectations may be higher after the ADP Non-Farm Payrolls beat with a whopping increase of 271,000 positions in the private sector. An upbeat NFP may boost the greenback but could hurt markets that may prefer bad news this time. A weakening economy may convince the Fed to ease its policy, thus supporting stocks.

Wages carry expectations for an increase of 0.3% MoM and 3.1% YoY. A surprising deceleration in salaries could have the same effect as a meager increase in jobs.

More: NFP Preview: Is the equity gloom on the US economy warranted?

Back in the old continent, preliminary inflation figures for December are projected to show a slowdown in the headline Consumer Price Index from 2% to 1.8% due to falling oil prices. Core CPI is expected to remain unchanged at 1%. 

The combination of the NFP and Powell's speech is set to keep movements limited before the events, and we could see an explosion afterward.

EUR/USD Technical Analysis

EUR/USD is trading between the 50 and 200 Simple Moving Averages on the four-hour chart. The Relative Strength Index is also stable, but Momentum points to the downside.

Some support awaits at 1.1380 that separated ranges on Thursday and converges with the 200 SMA. 1.1340 was a swing low in late December. The 1.1310 level was the low point in the flash crash and also served as support in early December. 1.1270 and 1.1215 are next.

1.1410 capped the pair in recent hours, and it is followed closely by the 50-SMA. 1.1440 capped the pair several times during December. 1.1480 was a swing high in the dying days of the year. 1.1500 was the peak in November. 

More: EUR/USD path of least resistance is down ahead of the Powell and the NFP – Confluence Detector