EUR/USD, GBP/USD, USD/CAD, USD/JPY Forecasts – US Jobs Data Spur DXY Decline, Hint at Fed Rate Cut

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Published: Mar 8, 2024, 17:33 UTC

Key Points:

Dollar Drops After Mixed Job Data, Rate Cut Possibilities
February Jobs Surge, Unemployment Rises to 3.9%
Mixed Job Data Muddles Market, Fed Rate Cut Looms
Dollar Weakens Short-Term Amid Job Growth, Rising Unemployment
Bearish Short-Term Outlook for Dollar, Fed Rate Cut Key

US Dollar Index

The U.S. dollar is trading lower against the major currencies on Friday following the release of mixed U.S. job data. This data, which indicated a surge in job growth but a rise in unemployment and moderated wage gains, suggests a potential interest rate cut by the Federal Reserve in June remains possible.

Job Growth and Unemployment Rate

February saw a significant increase in nonfarm payrolls, with 275,000 jobs added, according to the Bureau of Labor Statistics. However, this positive development was tempered by an uptick in the unemployment rate to 3.9%, up from a consistent 3.7% over the past three months. Additionally, the report revised January’s job creation numbers downward from 353,000 to 229,000.

Market Response and Federal Reserve Outlook

The labor market data triggered mixed reactions in the market. Investors had been concerned that the Federal Reserve might delay rate cuts, especially considering recent inflation reports. However, the latest job figures provide some optimism, suggesting a direction favorable for a rate reduction later in the year, albeit possibly not as aggressive as initially expected.

Dollar’s Short-Term Prospects

In the immediate aftermath, the dollar is projected to remain weaker. The combination of accelerated job growth and increased unemployment creates an uncertain landscape, influencing the dollar’s performance against other major currencies.

Bearish Outlook for the Dollar

Overall, the mixed job data points towards a bearish outlook for the U.S. dollar in the short term. The likelihood of a Federal Reserve rate cut, influenced by the current labor market situation, will be a critical factor to watch in the coming months.

4-Hour US Dollar Index (DXY)

The US Dollar Index is trading lower on Friday, but well-off its worst of the day as trader book profits ahead of the weekend after a steep drop for the week.

The robust recovery could create the momentum needed to turn the index higher for the session. A trade through 102.898 will change the short-term trend higher on the 4-hour chart.

A move through 102.557 will signal a resumption of the downtrend with 101.950 the next likely target.

EUR/USD

The euro climbed to an eight-week high at $1.09812 against the U.S. dollar on Friday, before turning lower. The move was buoyed by the European Central Bank’s decision to maintain interest rates at 4.00%. This cautious stance is coupled with a potential for rate cuts later, reflecting progress in inflation control. Concurrently, the U.S. dollar faces a downturn, pressured by potential Federal Reserve rate cuts. This contrast sets a bullish tone for the euro, urging traders to watch central bank actions closely.

4-Hour EURUSD

Technically, the main trend is up on the 4-hour chart, however, the current price action suggests momentum may be getting ready to shift to the downside. A trade through 1.0918 will change the 4-hour trend to down. Taking out the intraday high at 1.0981 will signal a resumption of the uptrend.

GBP/USD

4-Hour GBPUSD

On Friday, Sterling gained strength against a faltering dollar, propelled by indications that the U.S. Federal Reserve is potentially nearer to reducing rates compared to the Bank of England (BoE). Consequently, the pound reached its highest value since late July.

USD/JPY

4-Hour USD/JPY

The yen reached a five-week peak against the dollar, fueled by speculation that the Bank of Japan (BoJ) might increase interest rates and adopt a new approach to its quantitative monetary policy. This speculation is based on a Jiji news agency report suggesting the BoJ is contemplating a framework to guide future government bond purchases.

Additionally, separate information from Reuters indicated that an increasing number of BoJ policymakers are leaning towards ending negative interest rates as soon as this month. This shift is anticipated due to expectations of strong outcomes from this year’s wage negotiations, as reported by four sources familiar with the Bank’s stance.

As a result, the dollar dropped to its lowest level against the yen since February 2. Growing expectations that the BoJ might deviate from the global central bank trend by hiking rates this month have contributed to the yen’s ascent. In the short-term market forecast, the USD/JPY pair shows a strong downtrend, with predictions that it could test the 145.00 level.

USD/CAD

4-Hour USD/CAD

The USD/CAD is trading higher at the mid-session on the 4-hour chart after testing its lowest level since February 9 earlier in the session. The price action suggests the Forex pair may have reached a short-term bottom due to oversold conditions, following a steep sell-off earlier in the week.

The move we are witnessing is purely technical. The fundamentals are bearish with the Bank of Canada holding rates steady earlier in the week, and Fed Chair Powell as well as weak labor market data suggesting a Fed rate hike in June.

About the Author

James Hyerczykauthor

James is a Florida-based technical analyst, market researcher, educator and trader with 35+ years of experience. He is an expert in the area of patterns, price and time analysis as it applies to futures, Forex, and stocks.