EUR/USD bounces back strongly after US NFP data

• EUR/USD recovers strongly as the US Dollar retreats after the release of the US official employment data for October.
• The US presidential election could potentially inject volatility into the major pair as a Trump win could hurt the Eurozone’s export sector.
• Market expectations for large rate cuts from the ECB in December have diminished amid a pickup in inflation and higher growth.

EUR/USD rebounds strongly around the key resistance of 1.0900 in North American trading hours on Friday. The major currency pair bounces back strongly as the US Dollar (USD) falls back after the release of the United States (US) Nonfarm Payrolls (NFP) data for October. The report showed that the economy added 12K fresh payrolls, significantly lower than estimates of 113K and the former release of 223K, downwardly revised from 254K in September. The Unemployment Rate remained steady at 4.1%, as expected.

The NFP report indicated that payroll employment estimates in some industries were affected by the hurricanes, which were identified on Florida’s Gulf Coast on September 26, 2024, and then tracked north into several other states. The Bureau of Labor Statistics (BLS) clarified that it is not possible to quantify the net effect on the over-the-month change in national employment, hours, or earnings estimates because the establishment survey is not designed to isolate effects from extreme weather events. However, the agency has said that it will release the state estimates of employment and unemployment for October on November 19, 2024.

Meanwhile, a negative impact is clearly visible on the US Dollar (USD), with the US Dollar Index (DXY) turning negative on an intraday basis and declining to near 103.70. Average Hourly Earnings data for October, a key measure of wage growth, rose expectedly by 4% on the year. Month-on-month wage growth measure rose by 0.4%, faster than estimates and the former release of 0.3%.

Going forward, investors will pay close attention to the ISM Manufacturing Purchasing Managers’ Index (PMI) data for October, which will be published at 14:00 GMT. The ISM Manufacturing PMI is seen at 47.6 in October, up slightly from 47.2 in September, suggesting that the contracting trend is intact but its pace has slowed. The factory activity data will influence market expectations for the Federal Reserve (Fed) interest rate path for the remainder of the year. According to the CME FedWatch too, traders are fully pricing in a 25 basis points (bps) rate cut at the next meeting on Thursday.

Daily digest market movers: EUR/USD gains sharply on higher Eurozone GDP growth, hot inflation data

• EUR/USD gains on Euro’s (EUR) strong performance against its peers. Faster-than-expected Eurozone Gross Domestic Product (GDP) growth in the third quarter of the year and hotter-than-forecasted inflation have forced traders to reassess bets supporting European Central Bank (ECB) larger-than-usual rate cut bets for the December policy meeting, a scenario that strengthens the Euro.
• Eurostat showed on Wednesday that the Eurozone economy expanded by 0.9% compared to the same quarter of the preceding year, accelerating from the 0.6% growth in the previous quarter, mainly due to a surprise performance of the German economy, according to flash estimates. This has diminished the immediate risks of an economic downturn, although the outlook remains uncertain ahead of the US presidential election, which will take place on Tuesday.
• Eurozone exports are expected to be hit if former President Donald Trump wins against current Vice President Kamala Harris. Trump has vowed for a universal tariff of 10% on all nations – except China, which is expected to face much higher tariffs – to boost in-house manufacturing capabilities.
• Another factor supporting the EUR is the recent inflation uptick in the Eurozone. The preliminary Harmonized Index of Consumer Prices (HICP) accelerated more than expected to 2% in October from 1.7% in September.

Technical Analysis: EUR/USD strives to break above 20-day EMA

EUR/USD posts a fresh two-week high slightly above 1.0900 on Thursday. The major currency pair gains to near the 20-day Exponential Moving Average (EMA), which trades at around 1.0900. EUR/USD had previously rebounded sharply after gaining a firm footing near the upward-sloping trendline around 1.0750, which is plotted from the April 16  low at around 1.0600.

The 14-day Relative Strength Index (RSI) climbs to near 42.00 after staying in the 20.00-40.00 range for almost a month, suggesting that the bearish momentum is waning.

Looking up, the shared currency pair could rise to near the September 11 low around 1.1000. On the downside, the October 23 low of 1.0760 will be the key support area.