EUR/USD fell back below 1.1100 as the US Dollar strengthened despite signs of a slowdown in US labor demand. Traders are divided on the potential size of the Fed’s interest rate cut, while the ECB is expected to cut rates twice more this year.
The decline in EUR/USD occurred after it reached a weekly high of 1.1150 but was unable to sustain the gains due to a recovery in the US Dollar. The US Dollar Index rose to nearly 101.40 after reversing intraday losses, despite the weaker-than-expected US Nonfarm Payrolls data for August.
The US labor market has shown signs of weakening, with lower job hires and job openings data leading to fears of deteriorating conditions. Market expectations are growing for the Fed to aggressively cut interest rates, with a 43% chance of a 50 basis point reduction in rates.
Despite the slowdown in labor demand, US Average Hourly Earnings data showed faster-than-expected wage growth in August. Traders are unsure about the ECB’s interest rate path for the rest of the year, with expectations of further rate cuts. Economists anticipate ECB rate cuts in the September meeting and possibly in November or December.
Technical analysis shows that while EUR/USD fell below 1.1100, the near-term outlook remains strong as the currency pair finds support near the 20-day Exponential Moving Average. The longer-term outlook is bullish, and the RSI has declined after reaching overbought levels. Euro bulls are eyeing the recent high of 1.1200, while downside support is expected near 1.1000.
Overall, the divergence in monetary policies between the US and Eurozone, along with concerns about economic growth in the Eurozone, continue to impact the EUR/USD exchange rate. Traders will closely monitor upcoming ECB meetings for further insights into the central bank’s policy decisions and their impact on the Euro.
