Dollar Peaks After NFP Surprise. Rate Cuts Pushed Back?

EUR/USD Support Threatened as the Greenback Gains Traction.

The Dollar has been on fire after the double main events of last week, namely the Fed Chair’s Press Conference and the Non-Farm Payrolls report that blew expectations out of the water.

During the press conference, Fed Chair Jerome Powell pushed back bets about a rate cut as soon as March, saying that such a cut is “not likely”. However, he also stressed that nothing is set in stone. Friday’s Non-Farm Employment report showed that 353K new jobs were created, which was way above the forecast of 187K. The Average Hourly Earnings increased by 0.6%, double the forecast of 0.3%. Finally, the Unemployment Rate remained unchanged at 3.7% but exceeded the forecast of 3.8%.

These developments drastically reduced the probability of a rate cut in March. At the time of writing and according to the CME FedWatch tool, the probability of the Fed maintaining the rate unchanged at the March meeting is 84.5%.

Economic Calendar Highlights

Economic data will be scarce throughout the week, with only a few notable releases. The ISM Services PMI is Monday’s main event, scheduled for 3:00 pm GMT. The survey shows the opinions of purchasing managers from the services sector about business conditions such as employment levels, production, orders, and more. The PMI usually has a stronger impact if the actual numbers differ a lot from the forecast.

Eurozone’s Retail Sales will come out Tuesday at 10:00 am GMT but the impact is usually lower than the one of the U.S. Retail Sales. The German Final Consumer Price Index (CPI) will be released Friday at 7:00 am GMT; its importance is low because the Final version comes after the Preliminary, which tends to garner the most attention.

Technical Outlook – EUR/USD

The greenback is gaining some traction, as shown by the US Dollar Index (DXY), which reached December highs, currently trading at 104.12. EUR/USD is under bearish pressure and looks like volatility is picking up after a few days of back-and-forth movement, without clear direction.

Currently, the bears are trying to break the support at 1.0775 and possibly the December low located at 1.0724. If these barriers are breached, we may enter a period of USD dominance, with 1.0635 as a target.

It must be noted that the RSI is moving lower without being oversold, but it does show some divergence. Comparing the December low and the current price, we have a higher low on the chart and a lower low on the RSI – bullish divergence.

However, this type of divergence can disappear if the price breaks the previous low. If that happens, the price will show a lower low, just like the RSI.