EUR/USD Makes Headway after Weak NFPs & Dovish Fed

EUR/USD Analysis

The US economy added only 150,000 jobs in October, in the worst reading in nearly three years and the December 2020 losses (-268K). Unemployment inched up to 3.9% and wages grew by 4.1% y/y, which is the slowest pace in more than two year.

The weak report is definitely in the right direction for the return of inflation to the 2% target and Fed Chair Powell had said on Wednesday that "some softening" in the labor market would likely still be needed for this goal to be met ^[1]. It needs to be taken into account though, that employment declined by 33,000 in the "motor vehicles and parts" sector, largely due to the autoworkers strikes, which have now ended.

The jobs report comes just two days after the Fed delivered a dovish hold, which reinforces prospects that the terminal rate has been reached. As such, EUR/USD doubles down on the post-Fed advance and makes headway in its attempt to move past key technical hurdles and stop the bearish bias. It now tries to take out the 200DaysEMA and the 38.2% Fibonacci (1.0735-63) that would open the door towards 1.0959.

However, the labor market remains tight, despite coming into better balance. The economy continues to outperform and inflation remains elevated. This keeps the Fed on its toes and Chair Powell did not shut the door to more hikes. A week earlier, the European Central Bank had paused its tightening cycle, inflation is coming down and the economy struggles. Eurozone GDP slipped back to contraction in Q3 and inflation fell below 3% in October according to preliminary data.

EUR/USD may have a hard time eliciting much support for the monetary policy differential and has struggled at current levels over the past several days. It remains in a precarious position and rejection of the 38.2% Fibonacci could lead to new 2023 lows (1.0447).