The EUR/USD pair awoke from its slumber and shot up on Friday after the release of US Nonfarm payrolls showed an unforeseen fall in Average Hourly Earnings and rise in the Unemployment Rate, that suggest the Federal Reserve may begin cutting rates earlier than previously expected.
Whilst the headline NFP figure showed the economy adding 275,000 jobs in February, which was higher than the 200,000 expected, the other data in the Bureau of Labor Statistics (BLS) report suggested weaknesses in the labor market.
Average Hourly Earnings, which are a key component of inflation, rose by a lower-than-expected 4.3% YoY and 0.1% MoM. Both were below the 4.4% and 0.3% predicted. The Unemployment Rate, meanwhile, rose to a higher-than-expected 3.9% when it had been expected to stay put at 3.7%.
The data suggests less inflationary pressure from wages and low unemployment which could prompt the Fed to bring forward interest rate cuts to earlier in the year. Lower interest rates are negative for the Dollar as they reduce foreign capital inflows.
Euro pressured by comments from ECB officials
The Euro was hit on Friday after Governor of the Bank of France and ECB Governing Council member Francois Villeroy de Galua, said a rate cut in spring was now “very likely”, adding, “spring goes from April to June.”
His ECB colleague, Bundesbank President Joachim Nagel, said “The probability is increasing that we could see an interest-rate cut before the summer break,” adding, “This will be data dependent, but the prospects have brightened.”
Their dovish views clash with the more cautious stance of ECB President Christine Lagarde, who said after the ECB meeting on Thursday, that June would be the next key date for reviewing policy on interest rates. The Euro is declining as lower interest rates reduce the attractiveness of a currency as a place for foreign investors to park their capital.
EUR/USD is broadly speaking in a short-term uptrend, propelled higher by prospects that the US Fed is a fraction closer to lowering interest rates than the European Central Bank (ECB).
Technical Analysis: Euro recovers after pulling back
Turning to the charts, the EUR/USD rose up to the 1.0900s from February’s base-camp 1.0600 lows. The sequence of rising peaks and troughs suggests that overall a tentative short-term uptrend is in progress, slightly favouring bulls.
There are, however, signs a pullback could be unfolding. The Relative Strength Indicator (RSI) has exited the oversold zone, giving a sell signal. At the same time, the pair may have completed a three-wave ABC measured move pattern at the recent 1.0956 highs. This is further evidence a correction may be underway.
(Source: OANDA)
