Euro surges as shocking US NFP reverses Fed September hike expectations

EUR/USD jumps 0.43% on the day and trades around 1.1570 at the time of writing, as the US Dollar (USD) comes under heavy selling pressure following a much weaker-than-expected US employment report.

Data released by the Bureau of Labor Statistics (BLS) on Friday showed that US Nonfarm Payrolls (NFP) declined by 23K in July, compared with market expectations for an increase of 80K jobs. Previous months were also revised sharply lower, with June payrolls revised down from 57K to 20K and May from 129K to 63K, resulting in a combined downward revision of 103K jobs.

Despite the sharp deterioration in payroll growth, the Unemployment Rate edged down to 4.1% from 4.2%, while the Labor Force Participation Rate slipped to 61.4% from 61.5%. Meanwhile, annual Average Hourly Earnings growth slowed to 3.2% from a downwardly revised 3.4% in June, adding to evidence that the US labor market is gradually cooling.

The US Dollar (USD) weakens sharply following the release, as investors reduce bets that the Federal Reserve (Fed) will tighten monetary policy. According to the CME FedWatch Tool, the chance of a 25-basis-point rate hike at the September meeting has fallen to just 44%, down from 55% a day earlier and 67% a week ago. Markets no longer see a September rate hike as the most likely outcome, although they continue to price in a high chance of at least one 25-basis-point rate increase before the end of the year.

In Europe, German economic data provides only limited support to the Euro (EUR). Germany's Industrial Production rose by 0.2% in June, beating expectations of a 0.1% increase but slowing from May's 0.7% gain. Meanwhile, Germany's Trade Balance surplus narrowed to €15.4B, below market expectations.

The European Central Bank (ECB) continues to adopt a cautious stance after leaving interest rates unchanged at its latest meeting. Markets currently expect only one additional rate hike before the end of the year, with a lower chance of a second increase, while investors now turn their attention to the Fed's response following this significant deterioration in US labor market data.

EUR/USD technical analysis

In the one-hour chart, EUR/USD trades at 1.1574, extending its advance above the 100-period simple moving average (SMA) at 1.1530 and the 200-period SMA at 1.1494, which together reinforce a bullish near-term bias. Price also moves above the recent highs and resistance level around 1.1560, while the Relative Strength Index (14) stretches into overbought territory near 80, hinting that the latest upswing may be prone to short-term consolidation rather than a clean continuation.

On the downside, initial support is seen at 1.1560, followed by the 100-period SMA at 1.1530, with deeper demand zones aligned at the trend-line level of 1.1507, the horizontal base at 1.1500 and the 200-period SMA at 1.1494. With no clear resistance levels overhead in the current layout, the pair would likely need a dip toward these supports to ease overbought conditions before fresh buying interest can emerge for another leg higher.

(The technical analysis of this story was written with the help of an AI tool. Know more.)