Euro surges as shocking US NFP reverses Fed September hike expectations
EUR/USD jumps 0.43% on the day and trades around 1.1570 at the time of writing, as the US Dollar (USD) comes under heavy selling pressure following a much weaker-than-expected US employment report.
The Euro (EUR) experienced a significant surge on Friday after a surprise US Nonfarm Payrolls (NFP) report revealed a much weaker-than-anticipated job growth. The Bureau of Labor Statistics (BLS) reported that US Nonfarm Payrolls declined by 23K in July, far below the market's expectations of an increase of 80K jobs. This stark contrast to previous months, which were revised sharply downward, led to substantial selling pressure on the US Dollar (USD), causing the EUR/USD exchange rate to rise to 1.1570.
The Unemployment Rate slightly decreased to 4.1% from 4.2%, while the Labor Force Participation Rate dropped to 61.4% from 61.5%. Moreover, annual Average Hourly Earnings growth slowed to 3.2% from a previously revised 3.4%, indicating a gradual cooling in the US labor market.
Investors now interpret these labor market indicators as signs that the Federal Reserve (Fed) may be less likely to implement a rate hike at the September meeting. According to the CME FedWatch Tool, the probability of a 25-basis-point rate increase during the September meeting fell to 44%, down from 55% the previous day and 67% a week ago. Although the markets still anticipate at least one 25-basis-point rate hike before year-end, the likelihood has decreased considerably.
In Europe, Germany's economic data provided limited support for the Euro (EUR). Germany's Industrial Production rose by 0.2% in June, slightly above expectations, but declined from May's 0.7% gain. Additionally, Germany's Trade Balance surplus narrowed to €15.4B, falling below market expectations. The European Central Bank (ECB) maintained its cautious stance after keeping interest rates unchanged during its latest meeting.
Technical analysis suggests that EUR/USD is trading at 1.1574, surpassing both the 100-period simple moving average (SMA) at 1.1530 and the 200-period SMA at 1.1494. The Relative Strength Index (14) has entered overbought territory near 80, suggesting the potential for short-term consolidation rather than a sustained trend. Support levels are identified at 1.1560, 1.1530, 1.1507, 1.1500, and 1.1494, while the absence of clear resistance presents an opportunity for fresh buying interest if the pair continues to decline towards these supports.
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