The Euro experienced a slight increase on Friday, currently trading at 1.1677 against the US Dollar. Despite this uptick, the Euro is poised for a moderate weekly loss, marking its second consecutive negative week. The US Dollar has been on the retreat as traders prepare for what is anticipated to be soft Nonfarm Payroll (NFP) data expected later in the day. Recent weak employment figures and dovish remarks from Federal Reserve officials have contributed to pressure on the US Dollar.
The market sentiment leading up to the US NFP report has kept a mild risk appetite alive, though Dollar sales have remained subdued. Investors are looking for a weaker NFP report to affirm expectations of a potential interest rate cut by the Federal Reserve in September. Both the US weekly Initial Jobless Claims and the ADP Employment Change report, released Thursday, indicated a weaker labor market, supporting this outlook.
Commentary from Federal Reserve officials has further added to this dovish sentiment. New York Fed President John Williams noted the prospect of “gradual rate cuts,” while Chicago Fed President Austan Goolsbee indicated that the upcoming September meeting would be “live” due to concerns over labor market deterioration. Market sentiments toward a September rate cut have alleviated some earlier bond market pressures this week, leading to a retreat in German and French 30-year yields, although they still remain elevated.
In the Eurozone, attention is focused on employment changes and the final reading of the Q2 Gross Domestic Product (GDP). However, the main spotlight remains on the US Nonfarm Payrolls report, which is viewed as crucial for confirming the likelihood of a Fed rate cut later this month.
The Euro has shown strength against multiple major currencies, with the foremost gains coming against the US Dollar. Although it faced resistance recently, it is projected that the Euro could continue to recover its earlier losses due to prevailing risk-on sentiments in the market.
Economists predicted a slight increase in private payrolls—about 75K—after reporting a rise of 73K in July. However, the ADP report delivered a lower-than-expected increase of only 54K jobs in August, and Initial Jobless Claims rose to 237K, the highest since June—both underscoring waning momentum in the labor market.
Futures markets are almost entirely pricing in a 25-basis-point cut after the Fed’s meetings on September 16 and 17, with the CME Group’s FedWatch tool indicating a staggering 99.4% likelihood of a quarter-point cut, plus expectations for at least one more cut by the end of the year.
In the Eurozone, the final reading for Q2 GDP is expected to confirm a slowdown in economic growth to 0.1%, down from 0.6% in Q1 and a year-on-year rate of 1.4%, reduced from 1.5% earlier.
Technical analysis for the EUR/USD indicates building positive trends, though the bullish momentum is fragile. Analysts suggest that the Euro faces resistance at the September 3 high of 1.1682 and at a descending trendline resistance near 1.1720. Immediate support is at Thursday’s low near 1.1630, with further support around the 1.1575 to 1.1590 range, which has previously held.
Overall, labor market conditions remain a vital aspect for the health of economies and play a significant role in currency valuations. Strong employment figures typically lead to increased consumer spending, thereby boosting currency values. Wage growth trends, in particular, are critical for policymakers, given their connection to inflation rates and monetary policy decisions. The contrasting mandates of the US Federal Reserve and the European Central Bank regarding labor market conditions further highlight the intricate relationship between employment data, currency strength, and economic health.
