EUR/USD recovers strongly after weak US NFP data

• EUR/USD recovers strongly while the US dollar retreats following the release of official US employment data for October.
• The US presidential election could inject volatility into the pair, as a Trump victory could hurt the Eurozone export sector.
• Market expectations for big ECB rate cuts in December have diminished amid a pick-up in inflation and stronger growth.

EUR/USD bounces strongly around the key 1.0900 resistance in North American trading hours on Friday. The major currency pair rebounds strongly as the US Dollar (USD) retreats after the release of United States (US) Non-Farm Payrolls (NFP) data for October. The report showed the economy added 12,000 new payrolls, significantly lower than estimates of 113,000 and the previous release of 223,000, revised down from 254,000 in September. The unemployment rate remained stable at 4.1%, as expected.

The NFP report indicated that employment estimates in some industries were affected by the hurricanes, which were identified off the Florida Gulf Coast on September 26, 2024 and then moved north to several other states. The Bureau of Labor Statistics (BLS) clarified that it is not possible to quantify the net effect on the monthly change in national estimates of employment, hours, or earnings because the establishment survey is not designed to isolate the effects of extreme weather events. However, the agency has said it will release state employment and unemployment estimates for October on Nov. 19, 2024.

Meanwhile, a negative impact is clearly visible on the US Dollar (USD), with the DXY Dollar Index turning negative on an intraday basis and falling near 103.70. Average hourly earnings data for October, a key measure of wage growth, rose as expected by 4% year-on-year. The monthly wage growth measure rose 0.4%, faster than estimates and the previous release of 0.3%.

Looking ahead, investors will pay close attention to the ISM Manufacturing Purchasing Managers’ Index (PMI) data for October, due out at 14:00 GMT. The ISM Manufacturing PMI is expected to be at 47.6 in October, slightly above 47.2 in September, suggesting that the contraction trend is still intact but its pace has slowed. The factory activity data will influence market expectations about the path of the Federal Reserve (Fed) interest rates for the rest of the year. According to the CME’s FedWatch tool, traders are fully pricing in a 25 basis point (bps) rate cut at the upcoming meeting on Thursday.

What’s moving the market today: EUR/USD gains strongly due to higher GDP growth in the Eurozone and high inflation data

• EUR/USD gains from the strong performance of the Euro (EUR) against its peers. Faster-than-expected third-quarter Eurozone GDP growth and higher-than-expected inflation have forced traders to reassess bets supporting larger rate cuts. the usual by the European Central Bank (ECB) for the monetary policy meeting in December, a scenario that strengthens the Euro.
• Eurostat showed on Wednesday that the Eurozone economy expanded by 0.9% compared to the same quarter of the previous year, accelerating from 0.6% growth in the previous quarter, mainly due to a surprising performance of the German economy, according to the preliminary estimates. This has reduced the immediate risks of an economic recession, although the outlook remains uncertain ahead of the US presidential election, which takes place on Tuesday.
• Eurozone exports are expected to take a hit if former President Donald Trump wins against current Vice President Kamala Harris. Trump has promised a universal 10% tariff on all nations except China, which is expected to face much higher tariffs, to boost domestic manufacturing capabilities.
• Another factor supporting the EUR is the recent spike in inflation in the Eurozone. The preliminary Harmonized Index of Consumer Prices (HICP) accelerated more than expected to 2% in October from 1.7% in September.

Technical Analysis: EUR/USD struggles to break above 20-day EMA

EUR/USD marks a new two-week high slightly above 1.0900 on Thursday. The main currency pair gains near the 20-day exponential moving average (EMA), which is trading around 1.0900. EUR/USD had bounced strongly after finding firm support near the ascending trend line around 1.0750, which is traced from the April 16 low around 1.0600.

The 14-day Relative Strength Index (RSI) rises near 42.00 after remaining in the 20.00-40.00 range for almost a month, suggesting bearish momentum is waning.

Looking up, the shared currency pair could rise near the 9/11 low around 1.1000. On the downside, the October 23 low of 1.0760 will be the key support zone.