- EUR/USD edges lower to around 1.0370 as markets anticipate the US NFP report for January.
- The Federal Reserve is expected to cut interest rates at its June policy meeting.
- ECB's Cipollone suggests that tariffs on China could have a deflationary effect on the Eurozone.
EUR/USD edges lower to around 1.0370 in Friday's North American session as the US Dollar (USD) gains strength ahead of the highly anticipated US Nonfarm Payrolls (NFP) report for January, set for release at 13:30 GMT. Meanwhile, the US Dollar Index (DXY), which tracks the greenback against a basket of six major currencies, hovers near 107.80.
Economists expect the US economy to have added 170K jobs in January, a slowdown from December's 256K. The Unemployment Rate is projected to hold steady at 4.1%. The data will play a key role in shaping market expectations regarding the Federal Reserve's (Fed) monetary policy trajectory.
A stronger labor market report could reinforce expectations that the Fed will maintain current interest rates for longer, while weaker-than-expected figures would strengthen the case for rate cuts. According to the CME FedWatch Tool, markets anticipate the Fed's first rate cut to come in June. Last week, Fed Chair Jerome Powell reiterated that policy adjustments would only be made after clear signs of inflation cooling or labor market weakness.
Additionally, investors will closely watch the Average Hourly Earnings data, a key indicator of wage growth and consumer spending. Wage growth is expected to have slowed to 3.8% year-over-year from December's 3.9%, with a monthly increase of 0.3%.
Daily Market Movers: EUR/USD Pressured by ECB Dovish Outlook
- EUR/USD struggles near 1.0400 as the Euro faces pressure from ongoing concerns over potential tariffs by former US President Donald Trump. Last weekend, Trump warned that Europe could face new tariffs for not purchasing enough American goods, though he did not provide specifics.
- Trade tensions remain a key risk. Analysts at Macquarie note that Trump refrained from specifying tariff measures due to political instability in Germany and France. However, they caution that the EU remains a "target-rich" environment for potential US trade actions, which could escalate tensions quickly.
- Dovish ECB outlook weighs on the Euro. Growing economic uncertainty has prompted European Central Bank (ECB) officials to signal a more accommodative policy stance. ECB Executive Board member Piero Cipollone stated in an interview with Reuters that all officials agree there is still room for rate cuts.
- Trade policies could add deflationary pressures. Cipollone noted that tariffs on the Eurozone would immediately impact growth, while US-imposed tariffs on China could lead to an influx of Chinese goods into Europe, creating deflationary pressures in the region.
Technical Analysis: EUR/USD Holds Below 50-Day EMA, Bearish Bias Intact
EUR/USD trades near 1.0370 during Friday's North American session, remaining under pressure ahead of the US NFP employment report. The pair struggles below the 50-day Exponential Moving Average (EMA) at 1.0436, reinforcing a bearish outlook.
The 14-day Relative Strength Index (RSI) fluctuates between 40.00 and 60.00, signaling a lack of strong momentum and a sideways trading pattern.
On the downside, key support levels include the January 13 low at 1.0177 and the psychological 1.0100 mark. To the upside, the primary resistance for Euro bulls stands at 1.0500.
