EUR/USD: Weakens after Strong US Jobs Report Raises Expectations of Fed Rate Hike

Highlights

• Euro weakened after US job increase
• Nonfarm payrolls increase by 236,000 in March
• Fed may raise interest rates by 25 bps in May

Overview

The Euro weakened against the U.S. Dollar on Friday after data showed an increase in jobs in the world’s largest economy last month, suggesting that the Federal Reserve may have to raise interest rates next month.

On Friday, the EUR/USD settled at 1.0905, down 0.0014 or -0.13%. The Invesco CurrencyShares Euro Trust ETF (FXE) finished at $100.81, up $0.19 or +0.19%.

Before the release of the jobs report, the market was anticipating that the Federal Reserve would take a break at the May policy meeting. However, following the report, the market has increased the likelihood of the Fed raising interest rates by 25 basis points (bps) next month to 70%. Nonetheless, the market has also considered multiple rate cuts by the end of the year in its pricing.

US Nonfarm Payrolls Increase, Unemployment Rate Falls in March

On Friday, a government report showed that the nonfarm payrolls in the US increased by 236,000 in March, which was in line with the predicted figure of 239,000. Additionally, the data for February was revised upwards to show that 326,000 jobs were added, compared to the previous figure of 311,000. The unemployment rate also decreased to 3.5% from 3.6% in February. Moreover, there was an increase of 0.3% in average hourly earnings in March, following a 0.2% rise in February, which reflects wage inflation.

Traders Leaning toward Small Fed Rate Hike in May

Ahead of the May policy meeting, Federal Reserve officials are expected to continue sending out their message of longer-lasting interest rates, which is anticipated to strengthen expectations for one final rate hike and support the US dollar.

However, if the upcoming inflation and retail sales figures fail to meet expectations, the economic risk environment may become more negative, leading to a change in this outlook.

Daily EUR/USD Technical Analysis

The main trend is up according to the daily swing chart. A trade through 1.0974. A trade through 1.0974 will signal a resumption of the uptrend.

The minor trend is also up. A trade through 1.0788 will change the minor trend to down. This will shift momentum to the downside.

The nearest support is a minor pivot at 1.0881. This level stopped the selling every day last week. On the upside, the nearest resistance is a long-term 50% level at 1.0943. The EUR/USD settled inside the two retracement levels. The longer the Forex pair trades inside this range, the greater the breakout potential.

Daily EUR/USD Technical Forecast

Trader reaction to the minor pivot at 1.0881 is likely to determine the direction of the EUR/USD early Monday. However, post-holiday liquidity issues could limit the price action as well as Wednesday’s US consumer inflation data.

Bullish Scenario

A sustained move over 1.0881 will indicate the presence of buyers. If this creates enough upside momentum then look for a surge into the long-term 50% level at 1.0943.

Bearish Scenario

A sustained move under 1.0881 will signal the presence of sellers. This could trigger a quick break into another minor pivot at 1.0843.