EUR/USD Forex Technical Analysis – NFP on Tap; Reaction to US Average Hourly Earnings Could Set the Tone

The Euro is edging higher early Friday after hitting a new two-decade low the previous session ahead of today’s major report on U.S. labor market conditions. The data along with next week’s consumer inflation report could determine whether the Federal Reserve continues to aggressively hike interest rates when policymakers next meet on July 26-27, or if they let up a little on their aggressive path.

At 02:09 GMT, the EUR/USD is trading 1.0177, up 0.0016 or +0.16%. On Thursday, the Invesco CurrencyShares Euro Trust ETF (FXE) settled at $94.01, down $0.21 or -0.22%.

Friday’s June U.S. Non-Farm Payrolls report, due to be released at 12:30 GMT, is expected to show the economy added 260K new jobs. The unemployment rate is expected to remain steady at 3.6% and average hourly earnings are expected to come in at 0.3%.

Unless the jobs report misses on all levels, the market is not likely to change bets on a 75-basis point rate hike in July, followed by a 50 basis point hike in September. After that it’s a guess.

Traders will be watching the average hourly wages figure for signs of inflation. A stronger-than-expected rise will give the Fed reason to continue on its aggressive path. This would lift the U.S. Dollar, while putting pressure on the Euro.

Short-Term Outlook

Trader reaction to 1.0161 is likely to determine the direction of the EUR/USD early Friday.

Bearish Scenario

A sustained move under 1.0161 will indicate the presence of sellers. Taking out yesterday’s low at 1.0144 will indicate the selling pressure is getting stronger. This will put the EUR/USD in a position to continue on course for an eventual test of the December 2, 2002 main bottom at .9860.

Bullish Scenario

A sustained move over 1.0161 will signal the presence of buyers. Taking out yesterday’s high at 1.0221 will indicate the short-covering rally is getting stronger. This will also make 1.0144 a new minor bottom.

If the short-covering rally gains traction then look for a potential rally into the former main bottom at 1.0339, followed by the minor pivot at 1.0379. Since the main trend is down, sellers are likely to come in on a test of this area.

Side Notes

Remember that the NFP report is a three-part report so don’t caught chasing the headline number. The true reaction may be to the average hourly earnings number.