NFP Blowout Sends Dollar Higher Ahead of U.S. Inflation Data

EUR/USD eyes 1.1400 as downside pressure builds

The US Dollar rallied during the last 2 days of the previous week, after the U.S. Non-Farm Payrolls report smashed expectations and the Middle East conflict continued to affect the FX market.

During a public address, President Trump threatened more severe strikes on Iran, diminishing hopes of a swift de-escalation of the conflict. It also boosted safe-haven assets, sending the US Dollar Index (DXY) above 100 after a brief dip to 99.33 at the beginning of the week.

The NFP released on Friday showed that 178K new jobs were created during the previous month, blowing out of the water the forecast of just 65K. This means that the Fed will be less pressured to cut the interest rate to boost job creation. At the time of writing, the odds for a rate cut in June are negligible, at just 2.8%, according to the CME FedWatch tool.

Economic Calendar Highlights

The Forex market is headed into Easter Monday, with irregular liquidity and possibly low volume. Banks in major countries will be closed for the day. The only notable release of the day will be the U.S. Services PMI, scheduled at 2:00 pm GMT.

The FOMC Meeting Minutes will be released on Wednesday at 6:00 pm GMT, providing insight into the reasons behind the latest rate decision. The document can offer some clues on the next rate move, or at least information on the Fed’s priorities.

On Thursday at 12:30 pm GMT, we will get the first U.S. inflation data of the week, with the release of the Core PCE Price Index, which is the Fed’s preferred inflation gauge. The expected change is 0.4%, the same as the previous. The release is delayed by 13 days due to the latest U.S. government shutdown.

The U.S. Consumer Price Index (CPI) will come out on Friday at 12:30 pm GMT, providing more inflation details. Given that the labor market showed signs of improvement, the Fed will closely watch inflation, which can remain a problem due to the ongoing effects of the Middle East conflict.

Technical Outlook – EUR/USD

The pair is still stuck inside the range defined by 1.1600 resistance and 1.1400 support, as we saw last week when it was rejected once again at the top boundary. The dollar is likely to continue its assault on the euro and other major peers as long as uncertainty persists and investors remain biased towards safe-haven assets.

The main support remains 1.1400, and it looks like that’s the next destination. A break of this handle would send the pair towards the support at 1.1200, with possible rallies when the RSI enters oversold territory.