Dollar Strength Persists Despite Sharp NFP Miss

EUR/USD tests 1.1200 after breaking below its long-term trading range.

The dollar extended its gains throughout the week, reaching a 17-month high against the euro, despite softer-than-expected inflation data. The Fed’s preferred inflation gauge, the Core PCE Price Index, showed a 0.2% change, lower than the predicted 0.3%.

The odds of another 25-bps rate hike have decreased after the PCE reading, and went down further after the release of the US Non-Farm Payrolls (NFP) report, which severely missed expectations. Economists had anticipated 89K new jobs, but the actual number was 29K, and the previous value was revised from 162K to 133K.

The Average Hourly Earnings decreased, and the Unemployment Rate increased. This means that the US economy has fewer people working, with lower pay, which is not supportive of another rate increase. At the time of writing, the CME FedWatch tool shows only a 22% chance of another rate hike in October, down from around 70% a week ago.

Economic Calendar Highlights

The US Services PMI will be released on Monday at 2:00 pm GMT, showing the opinions of purchasing managers about business conditions in the services sector. It is a leading indicator of economic health, with medium impact on the dollar.

The FOMC will release the Minutes of the latest rate Meeting on Wednesday at 6:00 pm GMT. The document provides insights into the reasons that determined the latest interest rate vote, but can also contain hints about future rate moves.

The last release of the week will be the US Consumer Sentiment survey, scheduled for Friday at 2:00 pm GMT. The impact is not high, unless the actual number differs substantially from the forecast.

Technical Outlook – EUR/USD

Last week’s price action proved that the break of 1.1400 was real, and now the pair has hit the next major support, located at 1.1200. Given the importance of this level (it was the high zone of 2024) and the oversold RSI, we can expect to see a bounce higher.

The dollar gave back some of its earlier gains after the release of the NFP, but the move was soon reversed, and the pair ended the week near the lows. The fact that worse-than-expected data triggered only a brief bullish move before the pair resumed its decline points to underlying dollar strength. This means that we can expect to see a move below 1.1200.

The pair is now out of its long-term range between 1.1900 and 1.1400, and usually when an important range is broken, the price continues in the direction of the break for an extended period. The next major support is located at 1.1000, while resistance sits at 1.1325.