Forex alert: NFP setup – Euro bulls hold firm, and rightfully so

Forex market call

We’ve said it all week—this is not the time to abandon euro longs, no matter how much noise the preNFP circus drums up. The market is split into two factions ahead of Friday’s jobs report, and both sides are arming themselves with data-driven narratives.

On one side, the glass-half-full crowd argues that February’s labor market resilience will shine through. Jobless claims were still pinned near pre-COVID levels during the survey window, and the ISM services employment gauge just hit its highest level since 2021—a screaming bullish signal for hiring. And let’s not forget, the ADP payrolls report—a known contrarian indicator—just printed its weakest number since 2020, which, paradoxically, could be a setup for a blowout BLS print.

Then there’s the doom-and-gloom camp, pointing to the telltale cracks forming across the US economy. From the Beige Book to small business surveys, the Trump tariff storm and government layoffs are already casting a long shadow over corporate hiring decisions. If payrolls miss expectations, it’ll fuel an aggressive repricing of Fed rate cuts, putting the dollar on the ropes and launching the euro into orbit.

But here’s the real kicker—euro bulls hold the high ground. Even if NFP prints strong, the Fed’s pivot is already in motion, and with Germany unloading its biggest fiscal bazooka since reunification, the eurozone is finally catching a bid on fundamentals, not just rate differentials.

Unless European politics torpedoes the party, EUR/USD is primed for more upside. The technicals favor the breakout, sentiment is shifting, and a weak jobs print could be the match that sets the next leg higher toward 1.10 ablaze.

If you need a real-time read on where sentiment is leaning ahead of NFP, look no further than the explosive demand for S&P 500 put options expiring today—a clear sign that traders are hedging against a potential equity selloff. That also means if payrolls surprise to the upside, we could see some violent short-covering across risk assets, with stocks bouncing and the dollar catching a bid.

But let’s be clear—the real game here isn’t just about the dollar’s knee-jerk reaction to equities, but rather the ongoing shift from U.S. exceptionalism to European exceptionalism. If Wall Street rallies, sure, we could see a dollar relief bounce, but the broader macro picture still overwhelmingly favors a higher EUR/USD.

Even with the euro trading 1.5% rich relative to rate differentials, the market is far from stretched. The German fiscal bazooka, combined with a shifting ECB tone, continues to tilt the balance in favor of buying EUR/USD dips rather than fading strength.

I’ve already scaled out of 75% of my original longs, and yes, I’ve taken some heat from colleagues for “wimping out.” But trading isn’t about bravado—it’s about execution. My plan was always to ride the breakout, reassess at 1.09, and book profits post-NFP. Whether we hit that level or not, the exit strategy remains intact.

For now, I’ll let the headline chasers and momentum traders fight it out. But make no mistake—this trade has played out exactly as scripted.