The EUR/USD pair rallied on Thursday, reaching the 1.0800 resistance level as the US Dollar (USD) weakened amid concerns about the US labor market and economic health. With US markets closed for Independence Day, trading volumes were thin, but the Euro’s strength was evident.
Market Drivers: Weak US Data and European Political Landscape
- Softer US Labor Market: Recent data, including disappointing ADP employment figures and rising jobless claims, have raised concerns about the US labor market’s resilience, fueling expectations of Fed rate cuts and putting downward pressure on the USD.
- Economic Slowdown Concerns: The contraction in the ISM Services PMI, a key indicator of economic activity, has further amplified concerns about the US economy’s health.
- French Election Watch: The second round of French legislative elections is set for Sunday, and investors are closely monitoring the outcome as it could significantly impact the Eurozone’s political and economic landscape.
ECB Rate Cut Prospects and Fed’s Policy Path
The International Monetary Fund (IMF) has suggested that the ECB may have more room to cut interest rates further, given the recent easing of Eurozone inflation. However, the ECB remains cautious due to persistent inflationary pressures in the services sector.
Meanwhile, the market is increasingly pricing in Fed rate cuts, with the CME FedWatch tool showing a 63.4% probability of a rate cut in September. Investors are eagerly awaiting Friday’s US Nonfarm Payrolls (NFP) data for June, which could provide further clues about the Fed’s policy trajectory.
Technical Analysis: EUR/USD Breaks Above Key Moving Averages
The EUR/USD pair has broken above the 20-day, 50-day, and 200-day Exponential Moving Averages (EMAs), signaling a shift in momentum towards the bulls. However, the pair is facing resistance at the 1.0800 level, which coincides with the 200-day EMA.
The 14-day Relative Strength Index (RSI) is in the neutral range, indicating a lack of clear direction in the short term.
Key Takeaways:
- The EUR/USD pair is gaining strength as the US Dollar weakens on softer economic data and Fed rate cut expectations.
- The outcome of the French elections and Friday’s US NFP data will be crucial for determining the pair’s future direction.
- The technical outlook is turning bullish, but the pair faces key resistance levels that could limit further gains.
