EUR/USD Rate Susceptible to Strong US NFP Report

EUR/USD Rate Talking Points

EUR/USD slips to a fresh weekly low (0.9730) as it remains under pressure following the Federal Reserve interest rate decision, and the US Non-Farm Payrolls (NFP) report may fuel the recent weakness in the exchange rate as the update is anticipated to show a further improvement in the labor market.

EUR/USD Rate Susceptible to Strong US NFP Report

EUR/USD trades back below the 50-Day SMA (0.9873) after failing to test the September high (1.0198), and the exchange rate may struggle to retain the advance from the yearly low (0.9536) as it appears to be tracking the negative slope in the moving average.

At the same time, the NFP report may drag on EUR/USD as the US economy is anticipated to add 200K jobs in October, and signs of a resilient labor market may provide the Federal Open Market Committee (FOMC) with greater scope to pursue a highly restrictive policy as Chairman Jerome Powell emphasizes that “it is very premature” to pause the hiking-cycle.

As a result, the FOMC may maintain its existing approach to achieve price stability as Chairman Powell acknowledges that “we haven't seen inflation coming down,” and it remains to be seen if Fed officials will project a steeper path for US interest rates as the central bank is slated to release the updated Summary of Economic Projections (SEP) at the next rate decision on December 14.

Until then, EUR/USD may face headwinds as the European Central Bank (ECB) shows little interest in pursuing a restrictive policy, while the tilt in retail sentiment looks poised to persist as traders have been net-long the pair for most of the year.

The IG Client Sentiment (IGCS) report shows 66.90% of traders are currently net-long EUR/USD, with the ratio of traders long to short standing at 2.02 to 1.

The number of traders net-long is 14.20% higher than yesterday and 29.94% higher from last week, while the number of traders net-short is 18.53% lower than yesterday and 26.66% lower from last week. The rise in net-long interest has fueled the crowding behavior 53.29% of traders were net-long EUR/USD last week, while the decline in net-short position comes as the exchange rate trades to a fresh weekly low (0.9730).

With that said, another uptick in US employment may keep EUR/USD under pressure as it fuels speculation for another 75bp Fed rate hike, and the exchange rate may struggle to retain the advance from the yearly low (0.9536) as it appears to be tracking the negative slope in the 50-Day SMA (0.9873).

EUR/USD Rate Daily Chart

• EUR/USD trades back below the 50-Day SMA (0.9873) as it extends the decline from the October high (1.0094), and the exchange rate may track the negative slope in the moving average following the failed attempt to test the September high (1.0198).

• Lack of momentum to hold above the 0.9910 (78.6% retracement) to 0.9950 (50% expansion) region may push EUR/USD towards the October low (0.9632), with a break/close below the 0.9530 (61.8% expansion) area opening up the Fibonacci overlap around 0.9380 (261.8% expansion) to 0.9430 (261.8% expansion).

• However, EUR/USD may face range bound conditions if it defends the October low (0.9632), with a move above the 0.9910 (78.6% retracement) to 0.9950 (50% expansion) region bringing 1.0070 (161.8% expansion) back on the radar.