- EUR/USD rises above 1.0550 as weekly US Initial Jobless Claims exceed expectations.
- The ECB is anticipated to lower its Deposit Facility Rate by 25 bps to 3% next week.
- Political uncertainty in France adds pressure on the Euro.
The EUR/USD pair climbs above 1.0550, driven by a weaker US Dollar (USD). The US Dollar Index (DXY), which measures the USD against six major currencies, fell below the critical support level of 106.00 after the US Department of Labor reported higher-than-expected Initial Jobless Claims. For the week ending November 29, jobless claims rose to 224K, surpassing both the 215K prior reading and market forecasts.
The soft labor data has reignited concerns over weakening labor demand in the United States. However, investors await the US Nonfarm Payrolls (NFP) report for November, due Friday, for a clearer assessment of the labor market. Economists predict the addition of 200K new jobs, a significant rebound from the modest 12K increase recorded in October. The October figures were impacted by hurricane disruptions in certain industries. The Unemployment Rate is projected to edge higher to 4.2% from 4.1%, while wage growth trends will also be scrutinized through Average Hourly Earnings data.
The upcoming employment report will play a key role in shaping market expectations regarding the Federal Reserve's (Fed) future interest rate policy. Fed Chair Jerome Powell, speaking at the New York Times DealBook Summit, emphasized the central bank’s cautious approach. Powell cited improved labor demand, steady economic growth, and modestly rising inflation as reasons for measured rate adjustments. "The US economy is in remarkably good shape, and there is no reason it can't continue," Powell stated, adding that the Fed can afford to take a more cautious stance as it approaches a neutral rate.
According to the CME FedWatch Tool, there is a 77% probability that the Fed will cut interest rates by 25 basis points to 4.25%-4.50% during its December meeting, while 23% of market participants anticipate no change.
Daily Digest Market Movers: EUR/USD Climbs as Investors Navigate French Political Fallout
- EUR/USD rose above 1.0500 during North American trading on Thursday, supported by a sharp decline in the US Dollar and a strong performance from the Euro (EUR). The move comes as markets process the collapse of Michel Barnier’s three-month-old government in France following a no-confidence vote backed by a coalition of Far-Right and Left-Wing lawmakers.
- The political upheaval in France has exacerbated economic concerns, limiting the government's ability to address the growing fiscal deficit. The budget, central to the no-confidence motion, proposed €60 billion in tax hikes and spending cuts aimed at curbing France’s rising deficit. Lawmakers opposing the budget labeled it “flawed and harmful” to the French public. Before the vote, Barnier cautioned, “This reality will not disappear by the magic of a motion of censure,” warning that fiscal challenges would persist for the next administration.
- The fallout adds to the Eurozone’s struggles, already burdened by weak economic growth, dwindling demand, and looming tariff threats from the incoming US administration under President-elect Donald Trump. Economic data further underscores these challenges; German Factory Orders in October contracted by 1.5%, a softer decline than the anticipated 2% drop but a marked slowdown from the 7.2% growth seen in September.
- European Central Bank (ECB) President Christine Lagarde, testifying before the Parliamentary Committee on Wednesday, highlighted the uncertain and risk-laden outlook for the Eurozone. “The medium-term economic outlook is uncertain, however, and dominated by downside risks,” Lagarde noted, citing elevated geopolitical risks and increasing threats to international trade.
- Regarding monetary policy, Lagarde reiterated the ECB’s data-dependent stance. Market participants, however, widely anticipate a 25-basis-point cut to the ECB’s Deposit Facility Rate, lowering it to 3%, during the central bank’s December 12 meeting.
Technical Analysis: EUR/USD Climbs Above 1.0550
EUR/USD recovered from the psychological support level of 1.0500, advancing above 1.0550 during Thursday's North American session. Despite the rebound, the pair’s overall outlook remains bearish, as declining short-to-long-term EMAs continue to signal a downward trend.
The 14-day Relative Strength Index (RSI) has bounced back from oversold territory, rising above 40.00, indicating a temporary loss of bearish momentum. However, the downward trend persists.
On the downside, the November 22 low at 1.0330 serves as a critical support level for Euro bulls. Conversely, the 50-day EMA around 1.0750 acts as a key resistance point that the bulls need to overcome to shift the pair’s trajectory.
