EUR/USD: Weaker as Strong NFP Data Raises Fed Rate Hike Chances

Highlights

• Euro underpinned by ECB President’s remarks.
• U.S. Senate passes bill to raise debt ceiling.
• Mixed outlook for rate hikes amid uncertainty and inflation.

Breaking News:  US Payrolls Soar in May

In May, both public and private sector payrolls saw a significant increase of 339,000 jobs, surpassing the estimated figure of 190,000 by Dow Jones. This growth continues the positive trend of job creation for the 29th consecutive month.

However, the unemployment rate in May rose to 3.7% compared to the estimated rate of 3.5%. Interestingly, the labor force participation rate remained unchanged. Despite the increase, the jobless rate is still relatively low, nearing levels not seen since 1969, although it is the highest since October 2022.

Lagarde’s Supportive Remarks Ahead of NFP Report

Ahead of the release of the U.S. Non-Farm Payrolls report at 12:30 GMT, the Euro was trading without much change. The Euro had experienced a slight increase of 0.1% against the U.S. dollar, reaching $1.0767, its highest point in approximately a week. This rise can be attributed to the positive remarks made on Thursday by European Central Bank President Christine Lagarde, who emphasized the need for further policy tightening.

US Senate Passes Bill Raising Debt Ceiling

In other news, the U.S. Senate successfully passed a bill on Thursday to raise the government’s debt ceiling, which currently stands at $31.4 trillion. This action paves the way for President Joe Biden to sign the bill before the approaching deadline on Monday. The resolution of this issue removes the remaining obstacles and contributes to the optimistic sentiment prevailing in the market, resulting in a decline in the value of the U.S. dollar.

Debt Ceiling Bill Passage Weighs on Dollar

The U.S. Senate’s successful passage of a bill to suspend the debt ceiling and avoid a catastrophic default has had an unintended consequence: it has diminished one of the pillars supporting the U.S. dollar. The dollar had paradoxically benefited from the uncertainty surrounding the debt ceiling due to its safe-haven status.

Amid Fed Uncertainty, Mixed Outlook Ahead

Now that the debt ceiling issue is no longer a concern, attention has shifted back to central banks and economic data. However, there have been conflicting signals from officials, creating a mixed outlook. While two officials mentioned the possibility of skipping a rate hike in June, it does not rule out the possibility of a hike later in the summer, potentially even in July. This expectation of a future rate hike could still provide support for the dollar.

Fed Rate Hike in June Could Cap Euro

Additionally, it is important to note that inflation remains high, adding to the complexity of the situation. Philadelphia Fed President Patrick Harker suggested hitting the pause button for one meeting to assess the situation during the upcoming June Fed meeting. Similarly, Fed Governor Philip Jefferson emphasized the need for more data before making decisions on policy firming.

Furthermore, recent softness in U.S. manufacturing data supports the argument for a pause in rate hikes. However, the strong job figures continue to be a significant focus, especially with the upcoming release of the monthly non-farm payrolls report at 12:30 GMT.

Technical Analysis

The EUR/USD is trading lower on Friday, but on the bearish side of 1.0807 (PIVOT). Although the trend is down, the chart pattern suggests momentum may be getting ready to shift to the upside.

The inability to overcome 1.0807 (PIVOT) will signal the presence of strong sellers. This could trigger a resumption of the downmove with 1.0522 (S1) the next support target.

With the  trend down, sellers are likely to come in on the first test of 1.0807 (PIVOT). However, overtaking it will indicate strong counter-trend buying with 1.0979 (R1) the next target.

For a look at all of today’s economic events, check out our economic calendar.