In the early European morning on Friday, EUR/USD is continuing its upward momentum, approaching the 1.0902 level. The US Dollar is facing challenges in gaining traction, enabling the Euro to climb further amid a positive market sentiment. Attention is now focused on the upcoming release of the US Non-Farm Payrolls (NFP) data.
Should sellers maintain control, EUR/USD could revisit its 2024 low at 1.0778 (February 1), supported by the temporary 100-day SMA at 1.0779, with a potential decline to the December 2023 low of 1.0722 (December 8). A breach of this level may encounter limited support until reaching the weekly low of 1.0492 (October 13, 2023), preceding the October 2023 low of 1.0446 (October 3) and the psychological level of 1.0410.
The outlook for the pair is anticipated to turn bearish upon consistent clearance of the crucial 200-day SMA at 1.0840.
On the upside, a break above the weekly high of 1.0930 (January 24) is necessary for reaching the subsequent weekly peak at 1.0997 (January 11), reinforcing the psychological barrier at 1.1000. Further upward movement might open the door for a potential attempt at the December high of 1.1140 (December 28).
The four-hour chart indicates a gradual bearish trend at present. A move below 1.0777 could lead to 1.0722, followed by 1.0655. Conversely, bullish attempts may aim to challenge 1.0932 before reaching 1.0996. While the MACD remains negative, the RSI shows some improvement, hovering around 48.
After dipping to new two-month lows around 1.0778, a level coinciding with the temporary 100-day SMA, EUR/USD managed to recover and surpass the 1.0800 mark on Thursday.
In terms of the US Dollar, the USD Index (DXY) stayed within a consolidative range over multiple sessions as market participants digested the recent FOMC event on January 31.
Regarding the FOMC event, it’s noteworthy that Powell announced the Federal Reserve’s readiness to maintain the current policy rate for an extended period, if necessary. He acknowledged uncertainties in consistent inflation progress and hinted at the potential for rate reductions later in the year. Powell highlighted the tightness of the labor market while also recognizing potential negative impacts on the economy if rate reductions are delayed. He emphasized decisions being made on a meeting-by-meeting basis, expressing the belief that the policy rate has likely peaked and indicating that a rate cut in March seemed unlikely.
Looking ahead, investor discussions are expected to continue, leaving the possibility of the first interest rate cut in March or May open, with probabilities around 37% and 60%, respectively, according to CME Group’s FedWatch Tool.
Meanwhile, caution is anticipated among investors as they await the release of the significant US Nonfarm Payrolls report on February 2. A strong showing in January’s Payrolls report should reinforce the perception of a tight labor market and support the idea of a soft economic landing. This, in turn, could strengthen the case for a May rate cut by the Fed, providing short-term support to the US dollar and yields.