Markets Await NFP as Dollar Loses Safe-Haven Appeal

EUR/USD remains range-bound with 1.1700 acting as key resistance

Market movements remain strongly correlated to the developments in the US – Iran war, with a potential ceasefire extension creating ripples of volatility. Both parties suggested that a draft agreement is being prepared, but friction points remain, and the rhetoric changes almost on a daily basis.

The price of oil dropped sharply on the news of a potential deal, which would include the reopening of the Strait of Hormuz. The dollar was also hurt by the decreased demand for safe-haven assets, and the US Dollar Index (DXY), which tracks the dollar’s performance against 6 major peers, gave up the gains made earlier during last week.

Inflation in the U.S. cooled off slightly, as shown by last week’s Core PCE Price Index: it increased by 0.2%, down from the previous 0.3%. Lower oil prices could add to the cooling inflation, but it may not be enough to trigger monetary easing (rate cuts). However, a sustained downtrend in oil prices could lead to a rate cut eventually. At the time of writing, the chances of a rate cut this year are almost non-existent, according to the CME FedWatch tool.

Economic Calendar Highlights

The first notable release of the week will be the US Manufacturing PMI, scheduled for Monday at 2:00 pm GMT. Usually, the PMI has a medium impact on the dollar, but it can become higher if the reading differs significantly from the forecast.

On Tuesday at 9:00 am GMT, traders will focus on the European Core Consumer Price Index (CPI) Estimate (year over year), which is the European Central Bank’s (ECB) main inflation gauge. The forecast is 2.4%, higher than the previous 2.2%.

The main event of the week will be the release of the US Non-Farm Payrolls (NFP), scheduled for Friday at 12:30 pm GMT. This is a high-impact indicator, which shows how many new jobs were created during the previous month. The Unemployment Rate and Average Hourly Earnings will be released together with the NFP. A poor-performing labor market can sway the Fed towards a rate cut.

Technical Outlook – EUR/USD

The pair bounced at 1.1600 due to US Dollar weakness, but the resistance at 1.1700 was not challenged, and the range remained intact. The 200-day Moving Average (red line) is completely flat, indicating the lack of a clear direction. The other 2 moving averages (50-day and 100-day) are also clustered together, further showing the lack of a trend.

Friday’s candle shows long wicks on both the upper and lower parts, indicating indecision. For a trend to develop, we need to see a clear break of the bearish trend line and 1.1700 resistance, or a move below 1.1600. Overall, the pair remains in a wider range, capped by 1.1900 resistance and 1.1400 support.