- The euro is likely to gain as initial unemployment claims in the U.S. are sluggish and a gradual rise in inflation may set the stage for rate reductions by the Federal Reserve.
- First-time claims for unemployment benefits in the U.S. rose at the quickest rate in four years.
- The European Central Bank (ECB) has kept interest rates steady, dampening prospects for additional financial easing in the near future.
The EUR/USD exchange rate climbed on Friday, hovering around 1.1745 in early European trading, marking its potential for two consecutive weekly gains. Meanwhile, the U.S. dollar has been lingering near recent lows, as market sentiment regarding interest rate cuts by the Federal Reserve has shifted, although the ECB has maintained a steady course and remains optimistic about its economic outlook.
The ECB adjusted its deposit facility rate to 2%, with President Christine Lagarde noting that “the risks to economic growth are more balanced.” Such remarks have tempered market expectations for imminent interest rate reductions, boosting the euro’s value significantly.
According to the U.S. Department of Labor, initial unemployment claims surged to 263,000 in the first week of September, a notable increase from 236,000 the week prior. The August Consumer Price Index (CPI) met market predictions, as expectations grow for a quarter-point rate cut from the Fed next week and likely additional reductions by year-end.
On Friday, all eyes will be on the University of Michigan’s Consumer Sentiment Survey, which is predicted to indicate further decline, exerting additional pressure on the U.S. Central Bank to potentially adjust monetary policy. The U.S. dollar faces risks from this downside trend.
Daily Digest Market Mover: Dollar falters after disappointing employment data
- The recent figures reveal that U.S. unemployment claims rose significantly, contradicting expectations and highlighting ongoing issues in the labor market, preparing the ground for the Fed to consider at least a 25 basis point cut next week.
- At the same time, the U.S. consumer price index showed a moderate inflation rise, with annual inflation hitting 2.9%, up from July’s 2.7%. Core CPI remained steady at 3.1%, aligning with expectations, while the monthly CPI accelerated by 0.4%. However, this did not alter the Fed’s approach but lowered the odds of a substantial 50 basis point cut next week.
- In Europe, the ECB held deposit facility fees steady for its second consecutive meeting. Lagarde’s subsequent remarks indicated no plans for further monetary easing, and she expressed confidence in the economy, even with the ongoing inflation uncertainties. Overall, this balanced approach may support the euro against contrasting policies from the Fed.
- Consumer inflation was reported at 0.1% for August, marking a 2.2% rise from the previous year. This had minimal impact on the euro.
- At 14:00 GMT, the University of Michigan’s preliminary consumer sentiment index is expected to drop to 58.0 from August’s 58.2, reflecting a significant decline in consumer confidence that could apply bearish pressure on the U.S. dollar.
Technical Analysis: EUR/USD maintains bullish outlook
The EUR/USD surged upward from the lower boundary of its upward channel over the past three weeks, preserving a broader bullish sentiment. Technical indicators hint at a slight momentum reversal. The RSI has bounced above 50, and the MACD has crossed above the signal line, indicating potential for further upward movement.
Immediate resistance is seen at the recent high of 1.1745. Resistance levels at 1.1780-1.1790, which include highs from September 8th and July 24th, are likely to maintain bullish sentiment, surpassing the channel top at 1.1810.
Conversely, the 1.1720 level has so far contained downward movements. Should that level be breached, the channel’s bottom at 1.1670, just above Thursday’s low of 1.1660, needs monitoring. A breach here could undermine bullish perspectives and escalate pressure towards the lows from September 2nd and 3rd in the 1.1610 vicinity.
