The euro (EUR) saw an uptick against the US dollar (USD) on Friday, hovering around 1.1800 after touching a two-week low of 1.1765 earlier in the day. As stock markets dipped, there was a heightened sense of risk aversion, bolstering the safe-haven US dollar, and in Europe, disappointing figures from German industrial production contributed to the downtrend.
The US dollar is holding steady amidst a global market downturn, particularly influenced by a decline in the tech sector, which has raised alarms about possibly uncontrolled spending on artificial intelligence (AI). This risk-averse sentiment seems to be counteracting a few weak job reports from the U.S., increasing pressure on the Federal Reserve to step up support for job growth.
Meanwhile, on Thursday, the European Central Bank (ECB) decided to maintain interest rates as expected, brushed aside worries about the euro’s strength, and indicated that current monetary policy will remain unchanged.
The spotlight will turn to the Michigan Consumer Confidence Index on Friday, along with a speech from Fed Director Philip Jefferson during U.S. hours. Notably, the U.S. nonfarm payrolls (NFP) report has been delayed until next week, owing to a partial government shutdown.
Daily Digest Market Movement: USD remains strong in risk-off market
- Wall Street’s main indices experienced their third consecutive decline on Thursday, primarily due to a sell-off in tech stocks as quarterly earnings heightened concerns over an AI bubble.
- The US dollar has increased in value against major currencies since President Donald Trump nominated former Fed Governor Kevin Warsh to take over from Chairman Jerome Powell. Warsh is regarded as someone who would likely safeguard the central bank’s independence and maintain a cautious approach to monetary easing.
- On Thursday, the ECB opted to keep its savings scheme interest rate steady at 2%, maintaining that inflation would stabilize around this level, despite some recent softening in consumer price index (CPI) figures in the euro zone. ECB President Lagarde emphasized that monetary policy remains in a “good position” and downplayed inflation risks stemming from the euro’s strength.
- On Friday, ECB member Martin Kocher, who had earlier expressed concerns about a strong euro, stated that the central bank was not fully aware of the euro’s current strength.
- The exchange rate isn’t particularly influential in guiding the ECB’s decisions.
- In the US, rising alarm was evident from employment data, with weekly jobless claims jumping to 231,000 for the week ending January 31, up from 209,000 the prior week. Meanwhile, job openings for December fell to a five-year low of 6,542,000 from the November figure of 6,928,000.
- The recent weak jobs report followed Wednesday’s disappointing ADP jobs data, leading to increased expectations of a Fed interest rate cut in the first half of the year. The CME Group’s FedWatch tool now shows a 22% probability of a March rate cut, up from 9% earlier this week, while the likelihood for an April cut has risen to 40% from 24%.
- Eurozone statistics released on Friday indicated that German industrial production dropped by 1.9% in December, significantly worse than the expected 0.3% decline, with November’s figures also revised downward.
- In the United States, the preliminary Michigan Consumer Confidence Index for February is anticipated to decrease from 56.4 in January to 55.0.
Technical analysis: EUR/USD remains bearish, risks low at 1.1765
The EUR/USD pair is experiencing a bearish correction, with technical indicators on the 4-hour chart revealing a neutral to bearish trend. The MACD line is near the signal line, while the RSI is stabilizing below 50, indicative of moderate bearish momentum.
Support seems to lie between the 61.8% Fibonacci retracement level of the January rally at 1.1772 and the highs recorded on January 20th and 22nd, which are above 1.1765. Should these levels be surpassed, the next target could be the January 21st low of 1.1670.
For upward movement, breaking Wednesday’s high of 1.1838 and Monday’s high of 1.1874 would be necessary to confirm a trend reversal.
(The technical analysis in this story was assisted by AI tools.)
