EUR/USD gains as weak US Job Openings boost Fed large rate cut bets

EUR/USD clings to recovery near 1.1100 as weak US Job Openings data pushes the US Dollar on the back foot.
The major trigger for the US Dollar will be the August US NFP report on Friday.
The ECB is almost certain to cut interest rates this month.

EUR/USD rises to near 1.1100, with investors focusing on a slew of US economic data. The Euro (EUR) is performing strongly against its major peers even though annual Eurozone Retail Sales surprisingly declined by 0.1% in July. The Retail Sales data, a key measure of consumer spending, was expected to have grown at a similar pace. Meanwhile, monthly Retail Sales rose expectedly by 0.1%.

Weak households' spending would prompt market speculation that the European Central Bank (ECB) will resume its policy-easing cycle this month, which started in June, after pausing in July.

The ECB is widely anticipated to cut interest rates this month as officials have remained worried about poor growth prospects, with confidence that inflationary pressures continue to ease consistently. ECB Governing Council member François Villeroy de Galhau said in an interview with Bloomberg last week, “There are good reasons for the central bank to consider cutting its key interest rates in September.” Villeroy added, "Unfortunately, our growth remains too weak.” He further added, “The balance of risks still needs to be monitored in Europe."

Meanwhile, Eurozone growth concerns have deepened further as the final estimate HCOB PMI report showed that the overall economic activity expanded at a slower pace of 51.0 from the flash reading of 51.2. The Composite PMI expanded moderately due to slower growth in the service sector and a continuous contraction in the manufacturing sector.

Daily digest market movers: EUR/USD capitalizes on US Dollar's weakness

EUR/USD extends Wednesday’s recovery to near the round-level resistance of 1.1100 in Thursday’s European session. The major currency pair bounced back sharply on Wednesday after the release of the weaker-than-projected United States (US) JOLTS Job Openings data for July boosted market expectations for the Federal Reserve (Fed) to begin the long-awaited policy-easing cycle aggressively.
A sharp increase in market speculation for the Fed’s large interest rate cut this month weighed heavily on the US Dollar (USD). The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, extends its downside to near 101.20.
The JOLTS Job Openings data showed that job vacancies posted in July were lower at 7.67 million from a downwardly revised 7.91 million in June and below the estimates of 8.1 million. Weak job market data came in as red flags to the labor market.
For meaningful updates on current labor market conditions, investors await the US Nonfarm Payrolls (NFP) data for August, which will be published on Friday.
In today’s session, the US Dollar will be influenced by the ADP Employment Change and ISM Services Purchasing Managers Index (PMI) data for August, which will be published at 12:15 GMT and 14:00 GMT, respectively. Economists estimate that payrolls in the private sector rose by 145K from 122K in July. In the same period, activity in the service sector is projected to have expanded at a slower pace, with PMI coming in at 51.1 from the prior reading of 51.4. Upbeat private payrolls and Services PMI data would diminish market speculation for Fed large interest rate cuts, while soft data would strengthen them.

Technical Analysis: EUR/USD recovers from 20-day EMA

EUR/USD jumps to near 1.1100 on Thursday after a sharp recovery from a fresh two-week low near 1.1025. The near-term outlook of the major currency pair has improved as it manages to gain firm footing near the 20-day Exponential Moving Average (EMA) around 1.1055.

The longer-term outlook is also bullish as the 50-day and 200-day EMAs at 1.0970 and 1.0865, respectively, are sloping higher. Also, the shared currency pair holds the Rising Channel breakout on a daily time frame.

The 14-day Relative Strength Index (RSI) has declined below 60.00 after turning overbought near 75.00.

On the upside, the recent high of 1.1200 and the July 2023 high at 1.1275 will be the next stop for the Euro bulls. Meanwhile, the downside is expected to remain cushioned near the psychological support of 1.1000.

Fed FAQs

What does the Federal Reserve do, how does it impact the US Dollar?

Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.

How often does the Fed hold monetary policy meetings?

The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions. The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.

What is Quantitative Easing (QE) and how does it impact USD?

In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.

What is Quantitative Tightening (QT) and how does it impact the US Dollar?

Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.

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