EUR/USD traders are counting down the clock to critical events

EUR/USD is under making ground on Thursday and has moved up from a low of 1.0536 to score a corrective high of 1.0586 so far in the New York session ahead of the key US Nonfarm Payrolls on Friday. European stocks were held back by higher-for-longer interest rate worries but Treasury yields have eased on Wall Street supporting risk appetite.

US economic data has proven that there are signs of cracks in a tight US jobs market which is in contrast to how the markets were starting to position following Federal Reserve's Chair Jerome Powell's hawkish rhetoric to Congress earlier in the week. 

Data released on Thursday took some of the sting out of Fed Chairman Jerome Powell's hawkish tone and has shown US jobless claims leaped by 11% last week. This was the biggest increase in five months. At the same time,  planned layoffs for February quadrupled year-on-year. This data might be indicating that the Federal Reserve's hiking cycle has been playing out as intended and negates the need to hike aggressively. 

Consequently, all three major US stock indexes were up and the US Dollar has drifted lower in a correction from a  three-month high near 105.90 printed at the start of the week. The benchmark US Treasury yields have pulled back 0.8% and printed a low of 3.94% from 4.019%. In turn, the Euro is higher. However, Friday's Nonfarm Payrolls and next week's Consumer Price Index will be instrumental in guiding market expectations regarding the policy guidance likely to be offered by the FOMC at the March meeting. 

Looking to tomorrow's event, the earlier ADP report pointed to another solid jobs report. It’s worth noting that NFP has beaten ADP for seven straight months.  Will this streak continue in February? The ADP headline reading came in at 242k vs. 200k expected and a revised 119k (which was 106k) in January. ''The print adds to the sense that the economy is still humming along in February,'' analysts at Brown Brothers Harriman explained. 

''Of course, recall that ADP missed big in January even after the revision and so the predictive power of ADP leaves a lot to be desired. That said, the consensus for Friday's NFP has edged higher to 225k vs. 517k in January.  The unemployment rate is seen steady at 3.4% and average hourly earnings picking up to 4.7% y/y vs. 4.4% in January. Obviously, one big question is whether January NFP gets revised significantly in either direction,'' the analysts explained further. When giving their outlook for EURUSd, they said that they believe it remains on track to test 2023 low near $1.0485.  

Meanwhile, ING analyst Chris Turner said in a webinar that ''the euro may struggle to recover until the third quarter when the US Dollar is likely to fall in tandem with the short-end of the U.S. Treasury yield curve.''

 "Our baseline view for the second quarter had been a 1.05-1.10 range and clearly we are more towards the lower end of that and I suspect that the 1.05 area is going to be more pressured and more vulnerable during that period," Turner says, adding:

''However, the European Central Bank has been pretty hawkish about the prospect of further interest rate rises which may prevent EUR/USD from falling below the 1.05 support level even as the U.S. Federal Reserve signals higher rates.''

EUR/USD daily charts

In prior analysis, it was shown that an M-formation was forming on the daily chart as follows:

''The price has carved out an M-formation which is a pattern that tends to see a retest of the neckline near a 50% mean reversion in this particular case. 1.0520 guards 1.0480 while bulls will need to get above 1.06 to open risk to 1.0700.''

EUR/USD update

From the hourly chart, we can see how the M-formation has played out with the price moving up into the neckline area's resistance approaching the 38.2% Fibonacci retracement level.

At this juncture, bears will be monitoring the price action and on the lookout for opposing structures to align their shorts positions with. A break above the 78.6% Fibo may deter bears from getting heavily involved but the 1.0470s area is eyed as a downside target for a test of critical support on the way to the 200 DMA as per the daily chart: