The Euro has recently retraced most of its daily gains against the US Dollar, trading near the 1.1900 mark after encountering resistance around February’s highs near 1.1925. Despite this setback, the Euro remains 1.1% above last week’s lows due to recent disappointing US economic data raising concerns about the economic outlook. Attention is now shifting to the delayed release of January’s Nonfarm Payrolls (NFP) report.
US Retail Sales data for December indicated no growth, contradicting expectations of a 0.4% increase and following a 0.6% rise in November. This stagnation in consumer spending, a critical driver of the economy accounting for nearly 70% of GDP, suggests a weaker contribution to economic growth in late 2025. Moreover, a slowdown in labor costs during the fourth quarter signals a steadier labor market, providing the Federal Reserve further incentives to adopt a more accommodative monetary policy.
With a sparse economic calendar for the European session, all eyes are on the forthcoming US Nonfarm Payrolls Report. Economists predict that January will show an increase of approximately 70,000 payrolls, a rise from 50,000 jobs created in December. The unemployment rate is anticipated to hold steady at 4.4%, while wage growth is projected to slow to 3.6% year-on-year from 3.8% in the previous month.
On the preceding day, soft data pressured the US Dollar. Retail Sales remained unchanged in December, and the Bureau of Labor Statistics reported a reduction in the US Employment Cost Index to 0.7% in the fourth quarter from 0.8% in the prior quarter, marking the slowest annual growth since 2021. As a result, market participants have started to favor the dovish stance of the Federal Reserve, increasing their bets on potential rate cuts in 2026. Futures markets indicate nearly a 75% probability of a rate cut in June, with expectations of two to three additional cuts by December.
Throughout the day, Fed officials, including Kansas City Fed President Jeffrey Schmid, Vice Chair for Supervision Michelle Bowman, and Cleveland Fed President Beth Hammack, are scheduled to speak. Additionally, European Central Bank committee member Isabel Schnabel will address the media during the US trading session.
In terms of the Euro’s performance, it has demonstrated some strength against major currencies, particularly the Canadian Dollar, while revealing varying degrees of performance against others, such as the British Pound and Japanese Yen. A look at the technical analysis for the EUR/USD pairing shows it trading between the 38.2% and 50% Fibonacci retracements of a recent selloff, maintaining a positive bias, although indicators suggest a potential softening momentum.
Traders are particularly attentive to the support levels around the 38.2% Fibonacci retracement, as a slide below this point could exacerbate pressure towards recent lows. As the situation develops, the market’s response to upcoming economic indicators, particularly the NFP data, will significantly influence currency movements and investor sentiment.
