EUR/USD is holding strong gains above 1.0700 in early Europe. Recovery in risk sentiment weighs on the safe-haven US Dollar amid renewed dovish Fed bets. US regulators’ efforts to tame financial markets risk from SVB, Signature Bank favor risk profile. US CPI next of note.
EUR/USD faces interim resistance at 1.0600 just before 1.0620, where the 50-period Simple Moving Average (SMA) on the four-hour chart is located. With a four-hour close above the latter, the pair could target 1.0660 (broken ascending trend line) and 1.0700 (psychological level, static level).
On the downside, 1.0570 (20-period SMA) acts as dynamic support before 1.0530 (static level) and 1.0500 (psychological level).
EUR/USD has continued to edge higher toward the 1.0600 area in the early European morning on Friday after having registered modest daily gains on Thursday. Although the US Dollar (USD) stays under modest bearish pressure amid retreating US Treasury bond yields, the currency’s performance against its major rivals could be impacted in a significant way on the US February jobs report.
After the data published by the US Department of Labor revealed on Thursday that the weekly Initial Jobless Claims rose by 21K to 211K, the USD struggled to find demand.
Later in the day, the US Bureau of Labor Statistics’ (BLS) monthly report is forecast to show an increase of 205,000 in Nonfarm Payrolls (NFP) in February, following January’s strong 517,000 growth. Earlier in the week, FOMC Chairman Jerome Powell acknowledged that they are prepared to increase the pace of rate hikes but noted that they have not made a decision about the next policy step.
Hence, February labour market data could impact the market pricing of the size of the next Federal Reserve rate hike. According the CME Group FedWatch Tool, the probability of a 50 basis points (bps) Fed rate increase at the next policy meeting stands at 53%.
With a positive NFP print, at or above 250K, hawkish Fed bets are likely to return and provide a boost to the US Dollar. On the flip side, a weak NFP reading below 100K should cause markets to lean toward a 25 bps rate hike in March and hurt the USD. In that scenario, EUR/USD is likely to gather bullish momentum heading into the weekend.
In case the headline NFP arrives near market consensus, at around 200K, wage inflation could drive the market action. On a yearly basis, Average Hourly Earnings are forecast to rise to 4.7% from 4.4% in February. A hotter-than-anticipated wage inflation figure is likely to help the USD gather strength against its rivals and vice versa.