The U.S. Jobs Market Is Relentless. Fed’s Work Is Not Done
EUR/USD Pullback in Progress, Dollar Back on the Offensive
The NFP report blew expectations out of the water by posting a whopping 517K, almost double the previous 260K and way above the forecast of 193K. This came just two days after the Fed added 25 bps to the interest rate and set the stage for a policy shift from restrictive to less so.
The blockbuster NFP report shows that the U.S. jobs market is not cooling off just yet, which will play a role in the Fed’s war on inflation. During last week’s rate Meeting, the Fed laid the foundation for two more 25-bps rate hikes, switching from the word “pace” (of increases) to “extent”. Currently, the probability of a 25 bps hike in March is 97.4%, according to CME’s FEDWATCH tool.
The ECB added 50 bps to the main refinancing rate and suggested that the same will be added in March. EUR/USD is currently undergoing a pullback, mostly triggered by Friday’s U.S. jobs data.
Key Events for the Week Ahead
After a tumultuous last week, this one will be calmer, with just a few notable events. Tuesday at 5:00 pm GMT, Fed Chair Powell will speak at the Economic Club of Washington DC and Wednesday at 2:15 pm GMT, FOMC Member Williams will be interviewed by the Wall Street Journal, discussing the economic outlook.
Thursday at 10:00 am GMT the European Commission will release its Economic Forecasts. This is not a high-impact event but can create some movement in Euro pairs, depending on the contents of the document.
The final event of the week comes Friday at 3:00 pm GMT: the University of Michigan Consumer Sentiment survey. Confidence among consumers leads to an increased volume of retail sales, hence the importance of this survey.
Technical Outlook – EUR/USD
The pair is currently testing the support at 1.0775, with the US Dollar on the rise, boosted by the stellar employment data that came out Friday. We’ve talked about the bearish divergence that started to develop a while back and it seems like its effects are showing.
The bullish trend line is already broken and it looks like the pair is headed toward the 50-day Moving Average as well as the lower Bollinger band. For the time being, the bears are in control but after the said retracement is completed, the bullish movement will probably resume.
If the sellers manage to take the pair below the 50-day MA, we may experience an extended period of sideways movement but as long as the previous low (1.0500) remains intact, the overall bias is bullish.
