Pre-NFP Rally: Dollar Climbs as Rate Cut Hopes Dim

EUR/USD Bangs on Support Ahead of German Inflation, U.S. Jobs Data.

Despite discussion about aggressive rate cuts in early 2024, the US Dollar is displaying superiority against its counterparts in the US Dollar Index (DXY) and making hefty advances against its European rival, the Euro. EUR/USD finished last week right on the 1.0775 support, as lingering inflation in the U.S. pushed rate cuts further away.

The Core Personal Consumption Expenditures Index (PCE) showed a reading of 0.3%, which was in line with expectations but the previous number was revised higher, to 0.5%. At the time of writing, the CME FedWatch tool shows a mere 4.2% chance of a rate cut at the May Fed Meeting.

Volatility in the week ahead will be affected by the Easter Holiday but on Friday the Non-Farm Payrolls will roll out and this is always a major release, which usually triggers massive movement, no matter the overall situation.

Economic Calendar Highlights

Today at 2:00 pm GMT we take a look at the U.S. Manufacturing PMI, a survey of about 300 purchasing managers from the manufacturing industry. The impact is usually medium to high, depending on how much the actual numbers differ from the forecast.

Tuesday at 12:00 pm GMT the German Preliminary CPI will come out, with no change expected from the previous 0.4%. It is the main gauge of inflation in Germany and considering that the German economy is the backbone of the Eurozone, its importance cannot be understated.

Wednesday at 2:00 pm GMT the U.S. Services PMI will be released and at 4:10 pm GMT, Fed Chair Powell will speak at Stanford’s Business, Government, and Society Forum.

The main event of the week will be the U.S. jobs data, scheduled for release Friday at 12:30 pm GMT. The Non-Farm Payrolls report is expected to show that 205K new jobs were created, while the previous number was 275K. However, in the last few months, the actual numbers far exceeded expectations so it will be interesting to see how it holds up this time. The Average Hourly Earnings are expected to increase, while the Unemployment Rate will likely stay the same.

Technical Outlook – EUR/USD

The latest US Dollar strength took the pair right into the support at 1.0775 and below the 50-day Moving Average. Given the low expectations regarding the U.S. rate cut, the US Dollar bulls are likely to stay in control of the pair, which means that we will probably see a break of support this week.

The RSI is moving south without being oversold, which adds to this bearish scenario. The next target is likely to be the previous low, located at 1.0700. The Easter Holiday will surely affect volatility early in the week, so we may see some irregular movement, while later in the week, charts will be affected by the Non-Farm Payrolls.