EUR/USD Forecast: US Jobs Report and ECB Chatter Set the Course, A Detailed Analysis

Highlights

• EUR/USD tumbled by 0.73% on Thursday, reversing a 0.40% gain from Wednesday, ending at $1.08433 ahead of manufacturing PMI influence.
• The US Jobs Report to dictate monetary policy divergence and EUR/USD trajectory; markets bet on ECB rate hikes.
• A pickup in US wage growth and fall in unemployment rate may put a Fed rate hike on the table, impacting EUR/USD.

Thursday Overview

On Thursday, the EUR/USD tumbled by 0.73%. Reversing a 0.40% gain from Wednesday, the EUR/USD ended the day at $1.08433. The EUR/USD rose to a high of $1.09395 before sliding to a low of $1.08350.

Manufacturing Sector PMIs to Test EUR/USD Buyer Appetite

Manufacturing PMIs from Italy and Spain will draw interest his morning. Barring a slide in the Spanish PMI, we expect the manufacturing PMI for Italy to have more influence.

Investors must also consider the finalized PMIs for France, Germany, and Spain. A less marked contraction in the Italian manufacturing sector would support an upward revision to the Eurozone PMI.

While we expect EUR/USD sensitivity to the headline numbers, investors should consider the sub-components. The ECB remains fixated on inflation, making new orders, staffing levels, delivery times, input price, and output price inflation the focal points.

Investors should track ECB Executive Board member chatter. However, no ECB members are on the calendar to speak today, leaving commentary with the media to move the dial.

US Jobs Report to Define the EUR/USD Trajectory

The US Jobs Report will likely dictate monetary policy divergence and the EUR/USD trajectory.

While the markets are betting on further ECB interest rate hikes, uncertainty surrounds the Fed. The US Personal Income and Outlays Report failed to drive bets on a final Fed rate hike. Personal spending and inflationary measures were hawkish, while US personal income figures disappointed.

However, the US Jobs Report could deliver more certainty. A pickup in US wage growth and a fall in the unemployment rate would put a Fed rate hike on the table. We would expect wage growth to have more impact on Fed bets. A pickup in wage growth would support an uptrend in consumption to fuel demand-driven inflationary pressures.

Beyond the numbers, FOMC member commentary also needs consideration.

EUR/USD Price Action

Daily Chart

The 50-day EMA and $1.09292 denied a EUR/USD breakout on two consecutive sessions, leaving the EUR/USD with a downward bias.

Upward revisions to the Eurozone manufacturing PMI would support a retest of the 50-EMA and $1.09292 resistance band. However, we expect the US Jobs Report to have more impact on price action.

A pickup in US wage growth and a fall in the US unemployment rate would see the EUR/USD slide through the $1.08322 support band and the 200-day EMA. A sharp pullback would see the EUR/USD test the trend line and the $1.07635 support band.

However, a softer wage growth and a higher unemployment rate would give the bulls a run at the 50-day EMA.

Considering the 14-Daily RSI at 42.52, the EUR/USD has more room to fall before hitting oversold territory. A break under the trend line would bring sub-$1.0750 into view.

4-Hourly Chart

The $1.08322 support band limited the downside. However, the pullback through the 50-day EMA supports a fall through the support band to target the trend line. A hotter-than-expected US Jobs Report would bring sub-$1.08 and the trend line into view.

However, softer wage growth would support a breakout from the 50-day EMA to retest the 200-day EMA and the $1.09292 resistance band.

With a downward bias, the 14-4H RSI at 45.31 gives the EUR/USD room to fall before entering oversold territory.