EUR/USD Faces Risk of Sub-$0.97 Should US Nonfarm Payrolls Impress

It was a busy start to the European session for the EUR/USD. The German economy was back in the spotlight, with retail sales and industrial production in focus.

According to Destatis, retail sales slid by 1.3% in August, reversing a 0.7% increase in July. Economists forecast a 1.1% decline. Compared with August 2021, retail sales were 4.3% lower.

Industrial production fell by 0.8% in August versus a 0.3% decline in July. Economists forecast a 0.5% fall.

According to Destatis,

• Production in industry excluding energy and construction was down 0.1%.
• Within industry, the production of consumer goods increased by 1.8% and capital goods by 1.2%.
• However, the production of intermediate goods declined by 2.4%.
• Outside industry, energy production was down by 6.1%, with production in construction down by 2.1%.

The stats round off a bad week for the German economy, with the composite PMI at a 28-month low and factory orders taking a big hit.

However, with the ECB looking to bring inflation to target, economic conditions will have to deteriorate further to force a shift in policy. No ECB members are due to speak today to change the narrative.

Later today, US labor market numbers and FED chatter will deliver further volatility, with the probability of a 75-basis point rate hike now at 73%. Strong numbers could lead to talk of a percentage point hike.

EUR/USD Price Action

At the time of writing, the EUR was down 0.17% to $0.97735.

A mixed start to the day saw the EUR rose to a pre-stat high of $0.98120 before sliding to a post-stat low of $0.97723.

Technical Indicators

The EUR/USD needs to move through the $0.9835 pivot to target the First Major Resistance Level (R1) at $0.9882. Following the morning stats, US nonfarm payrolls will need to disappoint to support a breakout session.

In the case of an extended rally, the bulls will take a run at the Second Major Resistance Level (R2) at $0.9973. The Third Major Resistance Level (R3) sits at $1.0111.

Failure to move through the pivot would leave the First Major Support Level (S1) at $0.9744 in play. In the case of an extended sell-off, the EUR/USD pair would likely test support at $0.97 and the Second Major Support Level (S2) at $0.9697.

The Third Major Support Level (S3) sits at $0.9559.

Looking at the EMAs and the 4-hourly chart, the EMAs send a bearish signal. The EUR/USD sits below the 50-day EMA, currently at $0.98282. The 50-day EMA pulled back from the 100-day EMA, with the 100-day EMA easing back from the 200-day EMA, delivering bearish signals.

A EUR/USD move through the 50-day EMA ($0.98282) and the 100-day EMA ($0.98476) would support a run at R1 ($0.9882). However, failure to move through the 50-day EMA ($0.98282) would leave S1 ($0.9744) in play. The 200-day EMA sits at $0.99178.

The US Session

It is a big day ahead on the US economic calendar. The US labor market is in the spotlight, with September nonfarm payrolls in focus.

A sharp increase in nonfarm payrolls and a fall in unemployment could force the Fed to take a more aggressive path to curb inflation. US economic indicators and Fed chatter have increased the probability of a 75-basis point Fed rate hike to 73.1%, up from 56.5% on September 30.

Any bets of a percentage point move would drive the Dollar Spot Index (DXY) back towards 114.

Following today’s stats, FOMC member commentary will also need monitoring.