The EUR/USD exchange rate has shown a marked bullish trend, rising to a multi-week high of 1.1760 as markets reacted to weaker-than-expected US nonfarm payrolls (NFP) data.
Since reaching its lowest point of the year, the pair has surged by approximately 15%, now hovering near the year-to-date high of 1.1828. The article by Nabotex Group’s broker Ben Stevens provides expert insight and a clear dissection of the topic.
This movement underscores growing market expectations that the US economic slowdown could prompt further action from the Federal Reserve, while the European Central Bank (ECB) is expected to maintain its current policy stance.
ECB Decision and US Inflation Data
The recent US jobs report revealed that economic growth may be losing momentum. In August, the economy added only 22,000 jobs, and the unemployment rate increased to 4.3%, marking the highest level since the pandemic.
In addition, the Bureau of Labor Statistics (BLS) revised prior figures: the July jobs report was increased by 2,000, while June’s employment numbers were lowered, showing a net job loss for the first time since 2020.
These weak payroll numbers have significant implications for the US dollar and monetary policy expectations. Analysts widely anticipate that the Federal Reserve may implement a 0.25% interest rate cut at its next policy meeting.
Some market observers are even forecasting a 0.50% cut, highlighting concerns over labor market weakness and broader economic stagnation. This softening US labor market has already contributed to EUR/USD gains, as traders price in a weaker US dollar scenario.
Looking ahead, US inflation data will be a critical driver for EUR/USD. Economists surveyed by Reuters expect the headline Consumer Price Index (CPI) to remain steady at 2.9% in August, unchanged from July.
Meanwhile, core inflation, which strips out volatile food and energy prices, is projected to increase slightly from 3.1% to 3.2%. Should these estimates hold, it would suggest that the impact of tariffs on inflation remains gradual but persistent.
More importantly, it would signal stagflationary pressures, complicating the Fed’s monetary policy as the central bank balances the need to cut rates with the ongoing inflationary backdrop.
Simultaneously, the EUR/USD exchange rate is sensitive to upcoming ECB decisions. Market participants generally expect the ECB to keep interest rates unchanged, maintaining its current stance on monetary policy. However, any unexpected hawkish or dovish signals could influence the euro, particularly in the context of a softening US dollar.
EUR/USD Technical Analysis
From a technical perspective, the EUR/USD pair has benefitted from the recent US labor market weakness, moving decisively above key moving averages, including the 25-day and 50-day lines. This movement indicates that bullish momentum is firmly in control.
Furthermore, the pair has formed a classic inverse head-and-shoulders pattern, which is widely regarded as a strong bullish reversal signal in technical analysis. Supporting this, the pair remains above the Ichimoku cloud, a popular trend-following indicator, signaling continued upside potential.
Given these technical patterns and macro drivers, the most probable scenario sees EUR/USD rebounding toward the year-to-date high of 1.1830. A break above this level would likely open the door for further gains, potentially challenging the next resistance level at 1.1900.
Traders should monitor short-term momentum indicators, as well as support levels around 1.1720, which may act as a floor for any temporary pullbacks.
Market Sentiment and Trading Implications
Market sentiment currently favors the euro, with traders positioning for continued dollar weakness ahead of US CPI releases and the ECB policy decision. The EUR/USD bullish outlook is supported by a combination of fundamental and technical factors:
- Weak US employment data is putting downward pressure on the dollar.
- Anticipated Fed rate cuts, reinforcing expectations of euro strength.
- Technically bullish formations, including inverse head-and-shoulders and Ichimoku cloud support.
Traders should also watch for volatility spikes around key events, particularly CPI releases and ECB statements, as these can trigger sharp intraday moves. Position sizing and stop-loss strategies remain critical in managing risk, given the potential for policy surprises.
Conclusion
In summary, the EUR/USD exchange rate is in a bullish phase, supported by weaker US labor data, the prospect of Federal Reserve rate cuts, and strong technical signals. The pair is approaching the year-to-date high of 1.1830, with potential to test 1.1900 resistance if momentum persists.
Upcoming US CPI data and the ECB decision are poised to act as the next major catalysts, shaping the direction of the EUR/USD market in the short term. Traders and investors should remain alert to economic indicators, central bank signals, and technical levels to capitalize on potential upside opportunities.
