- The EUR/USD is losing some of its earlier gains as the US dollar rebounds following the April Non-Farm Payroll (NFP) data.
- April’s flash HICP data for the Eurozone indicates inflation pressures increased more than anticipated.
- China has expressed readiness to engage in trade discussions with the United States, which has improved market sentiment.
The EUR/USD is experiencing selling pressure near the 1.1355 high marked during Friday’s North American trading session. Other major currencies have also dipped from their daily highs as the US dollar attracts buying interest after the release of the NFP data. The US Dollar Index (DXY), which measures the dollar against six major currencies, is hovering around 99.60.
The NFP data revealed that the US job growth was adjusted downward from the 130K forecast, showing an increase of 177K new positions, which is slightly less than March’s 185K, and significantly down from 228K previously noted. The unemployment rate remains stable at 4.2%. Additionally, average hourly earnings, a crucial indicator of wage growth, increased by only 0.2% monthly, below the expected 0.3%. Year-over-year, wage growth maintained steady at 3.8%, falling short of the anticipated 3.9%.
This stronger-than-expected job growth suggests that President Donald Trump’s tariff policy hasn’t significantly impacted labor demand. According to the CME FedWatch tool, there’s nearly a 50% chance that central banks may reduce interest rates in June, remaining in a range between 4.25% to 4.50% in May.
China has indicated its openness to negotiations and called on the US to demonstrate integrity in discussions, as reported by Bloomberg. In a tone of optimism, President Trump conveyed that a trade agreement with China is very likely but it would be on the US’s terms. He also mentioned the possibility of announcing trade deals with South Korea, Japan, and India.
From a technical standpoint, this environment could have been favorable for the US dollar since it alleviates concerns about reduced household purchasing power. There were expectations that US employers might bear the costs of higher tariffs, potentially decreasing consumer spending ability.
Market Update: EUR/USD retraces some gains but is still up 0.3% from the previous close
- Despite some pullback due to solid US NFP data, the EUR/USD is still up 0.30%, trading around 1.1320 in North America. Earlier, the pair saw a rise after stronger-than-expected Eurozone HICP data.
- Eurostat reported that core HICP, which excludes volatile elements like food and energy, rose faster than expected to 2.7%, surpassing the 2.5% expectation and improving from March’s 2.4%. Meanwhile, the overall HICP also increased more than anticipated to 2.2%, compared to the expected 2.1%. Monthly increases for both indices were reported at 0.6% for headline and 1.0% for core.
- The high inflation figures are expected to have limited effect on market forecasts regarding the European Central Bank’s (ECB) monetary policy, as officials remain concerned about economic downturns owing to the tariffs imposed by President Trump. There’s a belief among most ECB officials that inflation will return to the 2% target this year, guiding traders toward expectations of a 25 basis point cut during the June policy meeting.
- Earlier this week, ECB policymakers, including Finland’s Central Bank Governor Oli Rehn, discussed the necessity for further monetary easing in light of rising risks to eurozone inflation, which is targeted at 2% amidst Trump’s tariffs. Rehn did not dismiss the possibility of interest rates being cut below neutral levels, stressing that all options should be thoroughly considered.
Technical Analysis: EUR/USD aims to maintain above 1.1300
The EUR/USD has rebounded from a two-week low of 1.1265 hit on Thursday, currently standing above the key level of 1.1300. The pair gained traction after attracting bids near the 20-day EMA around 1.1260.
The 14-day RSI is within the 40.00-60.00 range, suggesting that bullish momentum may have peaked. Still, an upward bias prevails.
A psychological resistance level exists at 1.1500, while the support level for Eurobulls is found around the September 25th high of 1.1214.
(This report was updated at 10:16 GMT on May 2. The first bullet and paragraph clarified that the EUR/USD pair is trading near 1.1300, not 1.3300, and corrected analysts’ expectations regarding Eurozone HICP, initially noted as 2.1% instead of 2.2%.)
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