EUR/USD saw gains on Thursday, bringing the pair into positive territory for the week. This increase came as the US Dollar weakened after higher than expected US Initial Jobless Claims numbers were reported. With signs of weakness in the US job market, investors are now anticipating potential rate cuts from the Federal Reserve.
The rise in US Initial Jobless Claims to 231K for the week ended May 3, the highest since last August, raised expectations for rate cuts from the Fed. As a result, markets shifted towards risk appetite. The CME’s FedWatch Tool currently shows a 70% chance of at least a quarter-point rate cut at the Fed’s September rate call. Additionally, there is a 67% probability of a second rate cut by the end of 2024.
Despite market hopes for Fed rate cuts, caution is still present in Fedspeak. San Francisco Fed President Mary C. Daly mentioned uncertainty regarding inflation over the next three months. While employment data shows signs of weakness, risks appear low.
From a technical standpoint, EUR/USD rallied on Thursday after bouncing off the 200-hour EMA at 1.0740. This pushed the pair into positive territory for the week, up a quarter of a percent from Monday’s opening. The pair is now testing 1.0790, with resistance expected at the 200-day EMA at 1.0788. However, there has been a struggle to gain significant momentum, with the pair mainly consolidating around the 1.0600 handle.
In conclusion, EUR/USD climbed into positive territory for the week as the US Dollar weakened on the back of higher US Initial Jobless Claims. Rate cut expectations from the Fed increased, with markets pricing in the likelihood of rate cuts in September and potentially before the end of 2024. Despite hopes for rate cuts, caution remains in Fedspeak as uncertainty about inflation persists. From a technical perspective, EUR/USD faces resistance as it approaches the 200-day EMA, indicating a potential struggle to sustain bullish momentum. Investors will be keeping an eye on US consumer sentiment data due on Friday for further market direction.
