EUR/USD corrects sharply lower to 1.0440 post-Payrolls

EUR/USD comes under further downside pressure and rapidly breaks below the 1.0500 in the wake of the US jobs report on Friday.

EUR/USD: Gains appear capped near 1.0550 so far

EUR/USD picks up extra selling pressure after the release of the Nonfarm Payrolls showed the US economy added 263K jobs during November, surpassing initial estimates for a gain of 200K jobs. In addition, the October reading was also revised up to 284K (from 261K).

Further data saw the Unemployment Rate unchanged at 3.7% and the key Average Hourly Earnings – a proxy for inflation via wages – rise 0.6% MoM and 5.1% from a year earlier. Additionally, the Participation Rate eased a tad to 62.1% (from 62.2).

What to look for around EUR

EUR/USD’s upside momentum faltered ahead of 1.0550, or multi-month peaks, amidst persistent optimism in the risk complex and intense weakness in the dollar ahead of US Payrolls.

In the meantime, the European currency is expected to closely follow dollar dynamics, the impact of the energy crisis on the region and the Fed-ECB divergence. In addition, markets repricing of a potential pivot in the Fed’s policy remains the exclusive driver of the pair’s price action for the time being.

Back to the euro area, the increasing speculation of a potential recession in the bloc emerges as an important domestic headwind facing the euro in the short-term horizon.

Key events in the euro area this week: ECB Lagarde, Germany Balance of Trade (Friday).

Eminent issues on the back boiler: Continuation of the ECB hiking cycle vs. increasing recession risks. Impact of the war in Ukraine and the persistent energy crunch on the region’s growth prospects and inflation outlook. Risks of inflation becoming entrenched.

EUR/USD levels to watch

So far, the pair is losing 0.82% at 1.0440 and a breach of 1.0365 (200-day SMA) would target 1.0330 (weekly low November 28) en route to 1.0222 (weekly low November 21). On the upside, there is an initial hurdle at 1.0548 (monthly high December 2) ahead of 1.0614 (weekly high June 27) and finally 1.0773 (monthly high June 27).