U.S. Jobs Shock Puts Spotlight on US Inflation Data

EUR/USD clings to 1.1600 support zone as RSI approaches oversold

The U.S. job market lost 92K jobs last month, in stark contrast with the NFP forecast, which anticipated that 58K new jobs would be created. The previous number was also revised lower, from 130K to 126K, and the Unemployment Rate rose to 4.4% from the previous 4.3%.

This dire situation of the labor market would likely prompt the Federal Reserve to cut the interest rate sooner rather than later. However, at the time of writing, there’s only a 30% probability of a cut in June, according to the CME FedWatch tool.

The conflict in the Middle East is not looking like it’s going to end soon, which will fuel safe-haven assets demand. The dollar can benefit from this, but geopolitical uncertainty can create sudden bursts of volatility. Key U.S. inflation data is set for release this week, adding to the potential volatility.

Economic Calendar Highlights

The first important release of the week will be the U.S. Consumer Price Index (CPI), set for release on Wednesday at 12:30 pm GMT. The Core version is expected to increase by 0.2% (previous: 0.3%), while the headline figure is projected to increase by 0.2%, lower than the previous 0.3%.

Another measure of inflation, the Core PCE Price Index, will come out on Friday at 12:30 pm GMT. This is known to be the Fed’s preferred inflation gauge, but this release is delayed by 15 days due to the latest U.S. government shutdown, and the impact may be affected. The forecast is 0.4%, the same as the previous number. The U.S. Preliminary GDP will be released at the same time, 12:30 pm GMT, also with a 15-day delay.

Technical Outlook – EUR/USD

The pair finished last week very close to the support at 1.1600, after reaching as low as 1.1530 during the week. The bullish trend line provided good support and rejected the price several times last week. This increases the importance of the trend line and means that a break will likely fuel a bigger drop. The trend line is now tested, as the week opened with a bearish gap but rebounded in early Monday trading.

The next key support is located at 1.1400, but the Relative Strength Index is near its 30 level, signaling that the pair is approaching oversold. If the RSI drops below 30 and/or bullish divergence appears, the chances of a bounce will increase. The last few daily candles have shown long wicks in their lower part, which is a sign of rejection. The first upper barrier is located at 1.1700.