EUR/USD: Bulls await US NFP on the way to 1.1900

• EUR/USD steps back from one-month high, stays up for the sixth day.
• US dollar tracks sluggish Treasury yields, S&P 500 Futures follow mildly bid Wall Street closing.
• Virus jitters battle receding fears of Fed’s tapering during typical pre-NFP trading lull.
• Eurozone Retail Sales, US ISM Services PMI will also be important to watch.

EUR/USD bulls take a breather around monthly peak near 1.1880, despite staying up for the six consecutive days, heading into Friday’s European session.

The major currency pair remains on the front foot as technical breakout joins the market’s increased optimism towards a delayed Fed tapering. However, bulls are probed ahead of the key US Nonfarm Payrolls (NFP), as well as due to covid and geopolitical jitters. Also supporting the pair buyers is the increasing odds of the European Central Bank’s (ECB) softening of the weekly bond purchases.

With a clear upside break of the key trend line and 50-DMA, EUR/USD gains extra leverage the previous day while the bulls cheered likely dialing back of bond purchases by the ECB’s as well as downbeat early signals for the US jobs data dashing the Fed’s tapering plan.

The record high of the Eurozone Producer Price Index (PPI) for June, published the previous day, propelled chatters that the ECB needs to recall some of the easy money offered during the pandemic. “With the eurozone economic recovery broadly improving on the back of widening vaccination campaigns and inflation at a 10-year high, the ECB was expected to announce on Sept. 9 a reduction in monthly purchases from its 1.85 trillion euro Pandemic Emergency Purchase Programme (PEPP) ahead of the Federal Reserve’s own taper decision,” said Reuters poll.

On the other hand, the Initial Jobless Claims and Continuing Claims eased from the market consensus for the week ended on August 27 Thursday and the four-week average of Initial Jobless Claims also declined from 366.75K to 355K. Previously, the ADP Employment Change and the employment component of the US ISM Manufacturing PMI both signaled a contraction in the US jobs and marked the need for further easy money policies.

Elsewhere, mixed data concerning the coronavirus from Australia and New Zealand also challenge the momentum traders. While Australia refreshed record top infections and the UK daily cases of the virus also jump to the fresh multi-day high, receding hospitalization in the US and fewer cases from New Zealand mark dubious conditions of the COVID-19.

Furthermore, talks of Japanese PM Yoshihide Suga’s resignation and the UK’s battle for the likely stringent virus-led lockdown in the future also portray the current risk appetite and underpin the EUR/USD bulls. That said, S&P 500 Futures remain sluggish even as the Wall Street benchmarks closed mildly positive on Thursday whereas the US 10-year Treasury yields drop 0.4 basis points (bps) to 1.29% by the press time.

Looking forward, EUR/USD traders will keep their eyes on the US NFP for August, expected 750K versus 943K prior, for fresh impulse. However, the Eurozone Retail Sales and the US ISM Services PMI for July and August respectively, expected 4.8% versus 5.0% previous readouts and 61.5 compared to 64.1 prior in that order, will also be important to watch.

Read: Nonfarm Payrolls August Preview: Sine qua non for the taper

Technical analysis

With the bullish MACD conditions joining the 10-week-old trend line breakout, EUR/USD prices are likely to remain firmer towards July’s peak of 1.1908. However, the quote’s further upside will be challenged by the 50% Fibonacci retracement (Fibo) level of the May-August downside, around 1.1965, as well as the 200-DMA level of 1.2005. Alternatively, pullback moves will aim for the resistance-turned-support retest, near 1.1845, a break of which will be challenged by a confluence of 50-DMA and 23.6% Fibo near 1.1805.