The euro gained ground against the US dollar on Friday, rising to approximately 1.1562 and approaching a seven-week peak. The move was primarily driven by a weakening greenback following disappointing US Nonfarm Payrolls data, which prompted market participants to reduce expectations of further interest rate increases by the Federal Reserve.
Dollar soft after weak US jobs report
July's US Nonfarm Payrolls (NFP) report missed market forecasts by a considerable margin, signaling reduced momentum in the American labour market. In response, traders adjusted their expectations for Federal Reserve monetary policy, dampening demand for the US dollar. The greenback's weakness extended across major currency pairs, allowing Sterling (GBP/USD) to temporarily break above the 1.3500 threshold before relinquishing some of its gains.
In addition to the employment figures, broader market sentiment was influenced by geopolitical developments in the Middle East. Increased optimism surrounding regional peace efforts and the prospective reopening of the Strait of Hormuz contributed to defensive trading in the greenback. Shifting foreign exchange rates and interest rate expectations frequently ripple across global financial markets, impacting commodities and valuation benchmarks like the live gold price.
EUR/USD technical levels and chart indicators
Despite recent gains, EUR/USD has remained within a relatively narrow trading band for over a week. The currency pair has been in a recovery since falling below the 1.1400 handle in late July. Technical chart indicators point to sustained short-term upside momentum, with the Relative Strength Index (RSI) positioned at 63 and the Moving Average Convergence Divergence (MACD) indicator remaining positive.
Immediate upward movement faces technical resistance near the 100-day Simple Moving Average (SMA) at 1.1568, followed by the 200-day SMA at 1.1629. A decisive move above these moving averages would bring technical chart levels at 1.1700 and 1.1800 into focus. On the downside, initial support rests at the 50-day SMA at 1.1471, with the psychological 1.1400 level providing secondary support.
Inflation data in focus for central bank policy
Market attention now shifts to next week's release of the US Consumer Price Index (CPI) by the Department of Labor Statistics. The CPI measures monthly price shifts across a representative basket of goods and services, serving as a primary indicator of consumer inflation and purchasing power. High inflation figures typically strengthen the US dollar, whereas lower readings tend to exert downward pressure on the currency.
The Federal Reserve operates under a mandate from Congress to maintain price stability and maximum employment, targeting annual inflation near two per cent over the longer term. With inflation remaining an ongoing concern for policymakers, upcoming CPI data will provide vital guidance on whether the central bank maintains a firm stance or eases its policy trajectory.
Key takeaways
- EUR/USD rose towards 1.1562 as a disappointing July US payrolls report reduced Fed rate hike bets.
- Technical resistance sits at the 100-day SMA (1.1568) and 200-day SMA (1.1629), while support lies at 1.1471 and 1.1400.
- Upcoming US Consumer Price Index data next week will offer the next major test for currency direction.
Common questions
Why did the US dollar weaken after the NFP report?
A lower-than-expected Nonfarm Payrolls reading indicated cooling in the US labour market. This led investors to scale back expectations for Federal Reserve rate hikes, reducing yields and demand for the US dollar.
What are the main technical resistance levels for EUR/USD?
Immediate resistance is at the 100-day SMA of 1.1568, followed by the 200-day SMA at 1.1629 and horizontal price barriers at 1.1700 and 1.1800.
In summary, while weak US employment figures have pushed EUR/USD near multi-week highs, the pair remains capped below key technical moving averages ahead of next week's inflation release.