EUR/USD Weekly Outlook: All Eyes on Upcoming U.S. Jobs Report
The EUR/USD currency pair experienced a second consecutive week of decline last Friday, despite a notable rebound from a critical technical support zone. This movement coincided with a rally in risk assets, suggesting mixed sentiment in the markets. Looking ahead, the outlook for the EUR/USD appears set to be heavily influenced by the imminent release of the U.S. Non-Farm Payrolls (NFP) report, scheduled for Wednesday.
Dollar Strength and Market Dynamics
In the previous week, the U.S. dollar gained strength primarily due to a risk-off environment that adversely affected equities, cryptocurrencies, and precious metals. Stocks and alternative assets experienced selling pressures, leading traders to seek safety in the dollar. However, on Friday, dip-buyers entered the markets, alleviating some of the earlier losses and causing the dollar to respond late to softer labor market data released earlier in the week.
Implications for This Week
The downward adjustment in U.S. interest rate expectations has moderated the dollar’s defensive rally observed near the close of last week. This shift may leave the greenback vulnerable ahead of the NFP report, which analysts forecast to show an increase of about 70,000 jobs on the headline number. Should the employment data miss expectations or fail to demonstrate robust growth, the EUR/USD could retest higher levels towards the $1.20 mark. On the other hand, the Eurozone’s current stance suggests the European Central Bank (ECB) is comfortable with the current exchange rate, indicating limited catalysts from the euro side for significant moves this week.
Technical Analysis: Support and Resistance Levels
From a technical perspective, the EUR/USD formed a bullish engulfing pattern on the daily chart last Friday, finding support in the 1.1750 to 1.1765 area. This zone was previously a resistance level, marking a significant breakout point from late January. Additional support derives from the 21-day exponential moving average (EMA), which is trending upward and remains well above the 200-day EMA—an indication of an underlying bullish trend.
Moreover, technical analysts highlight the importance of the 61.8% Fibonacci retracement level near 1.1770, derived from the January low of 1.1578 to the late-month high of 1.2083. This retracement has acted as a reliable support point for the January rally so far.
Key Levels to Monitor
Traders should closely watch several critical price levels this week:
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Upside Resistance: Initial resistance is anticipated around 1.1835, corresponding with the low of an inverted hammer candlestick observed on the weekly timeframe. Breaching this level may signal weakening selling pressure, possibly triggering a short squeeze and a sharper upward move.
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Further resistance resides in the 1.1900 to 1.1920 range. Surpassing this could pave the way for a rally to the psychological 1.2000 level, followed by the year’s high at 1.2083. – Downside Support: A breakdown below the key 1.1750–1.1770 support zone could prompt a decline toward the 200-day EMA, currently near 1.1625. Beyond this, there is limited strong support until the 1.1500 level is tested.
Summary Outlook
Despite recent volatility, the overall technical trend for EUR/USD remains bullish, supported by moving averages and a pattern of higher highs and higher lows. Nevertheless, the next major price move will likely hinge on the outcome of the U.S. NFP report. Market participants should prepare for heightened volatility around this data release, which will offer critical insights into the health of the U.S. labor market and help determine the near-term direction of the U.S. dollar and, by extension, the EUR/USD exchange rate.
— Written by Fawad Razaqzada, Market Analyst
Follow Fawad on Twitter: @Trader_F_R
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