Dollar Retreats as Jobs Data Misses Forecasts

EUR/USD moves back above 1.1400 as the bearish breakout loses momentum

The dollar lost its shine last week after the US Non-Farm Payrolls report fell short of expectations, dimming the chances of a rate hike by the Fed. Job growth slowed considerably in June, with only 57K jobs created, while the forecast was 114K; also, the previous number was revised from 172K to 129K.

A rate hike is largely priced in for this year, but if the Fed moves too soon, it could hinder the recovery of the jobs market. And since inflation seems to stabilize, the Fed may choose to keep the rate unchanged for longer than initially anticipated. According to the CME FedWatch tool, the chances of a rate hike have dropped from 30% before the NFP release to 22% at the time of writing.

The story is different for the September meeting, with chances split down the middle: 45% for a 25-bps rate hike and 45% for the Fed to hold rates. The rest is reserved for a 50-bps hike, but it’s fair to say there’s a negligible chance of that happening.

Economic Calendar Highlights

The week ahead is light in terms of economic releases, with only two notable events. The ISM Services PMI is scheduled for release on Monday at 2:00 pm GMT, showing the views of about 300 purchasing managers on business conditions in the US Services sector. The impact is considered medium-to-low, but it can be amplified by numbers that differ substantially from the forecast.

The FOMC Meeting Minutes will be released on Wednesday at 6:00 pm GMT, offering details on the reasons that determined the latest interest rate votes. The release could have a substantial market impact if the Minutes provide clues about the Fed’s next interest rate move or offer greater clarity on which economic data policymakers are currently prioritizing.

Technical Outlook – EUR/USD

Last week, the pair appeared to complete a re-test of the 1.1400 level, but the NFP release weakened the dollar, allowing the euro to drag it as high as 1.1473. A successful re-test would have turned 1.1400 into resistance, but the pair moved above the level, which means it is back inside the long-term range between 1.1400 and 1.1900.

The last two daily candles have long wicks, showing rejection, and there is still enough left in the tank for the dollar. A quick move below 1.1400 would trigger a drop into the recent low at 1.1325, and possibly even lower, towards 1.1200.

If the pair remains above 1.1400, then the first potential resistance will be provided by the 50-day Moving Average (blue line on the chart).