- EUR/USD surrenders some of its intraday gains as the US Dollar bounces back after the release of the US NFP data for April.
- Flash Eurozone HICP shows that inflationary pressures grew at a faster-than-expected pace in April.
- China has shown openness to discuss bilateral trade with Washington, lifting the overall market risk tone.
EUR/USD faces selling pressures near the intraday high of 1.1355 in Friday’s North American session. The major currency is off from the day’s high as the US Dollar (USD) attracts bids after the release of the United States (US) Nonfarm Payrolls (NFP) data for April. The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, gains ground near 99.60.
The NFP data showed that the US economy added 177K fresh workers, higher than estimates of 130K but slightly lower than the March reading of 185K, revised lower from 228K. The Unemployment Rate remains steady at 4.2%, as expected. Meanwhile, the Average Hourly Earnings data, a key measure of wage growth, rose moderately by 0.2% on month, compared to estimates and the prior release of 0.3%. Year-on-year, the wage growth measure grew steadily by 3.8%, slower than expectations of 3.9%.
Better-than-expected job growth data indicate that the tariff policy by US President Donald Trump has not impacted the labor demand much, which is unlikely to boost market expectations that the Federal Reserve (Fed) should cut interest rates in the June meeting. According to the CME FedWatch tool, there is almost a 50% chance that the central bank will reduce interest rates in June after leaving them unchanged in the range of 4.25%-4.50% in May.
Earlier in the day, the US Dollar was underperforming its peers despite an increase in hopes of easing trade tensions between the US and China. Investors have become increasingly confident of a de-escalation in the Sino-US trade war after comments from the Chinese Commerce Ministry signaled their willingness to initiate trade talks with Washington.
China says the door is open to trade talks and urged the US to demonstrate sincerity if it wants to negotiate, Bloomberg reported. From Washington, US President Donald Trump has also expressed confidence that the US will reach a deal with China. “There’s a very good chance we’re going to make a deal, but we’re going to make it on our terms,” Trump said in an interview at NewsNation Town Hall on Thursday, adding that the White House can “announce potential trade deals with South Korea, Japan, and India”.
Technically, this scenario should have been favorable for the US Dollar as it diminishes fears of a decline in households’ purchasing power. Investors anticipated that US employers would pass on the burden of higher tariffs to customers, which would diminish their spending capacity.
Daily digest market movers: EUR/USD surrenders some gains, but is still 0.3% higher from the previous close
- The upbeat US NFP data has trimmed some of EUR/USD’s initial gains but is still 0.30% higher around 1.1320 in North American trading hours. Earlier in the day, the pair traded firmly after the release of the hotter-than-expected preliminary Eurozone Harmonized Index of Consumer Prices (HICP) data for April.
- The Eurostat reported that the core HICP – which excludes volatile components like food, energy, alcohol, and tobacco – grew at a faster pace of 2.7% compared to estimates of 2.5% and the March reading of 2.4%. In the same period, the headline HICP rose steadily by 2.2% on year, faster than estimates of 2.1%. Month-on-month, headline and core HICP rose steadily by 0.6% and 1.0%, respectively.
- The impact of the hot inflation figures is expected to be limited on market expectations for the European Central Bank’s (ECB) monetary policy outlook as officials are more concerned about the economic slowdown in the face of additional tariffs imposed by US President Donald Trump. Regarding inflation, most ECB officials look confident that it will return to the central bank’s target of 2% this year, which has led traders to price in a 25 basis points (bps) interest rate reduction by the ECB in the June policy meeting.
- Earlier this week, ECB policymaker and Finnish central bank governor Olli Rehn supported the need for further monetary policy expansion and expressed concerns about deepening risks to Eurozone inflation undershooting the central bank’s target of 2% in the face of Trump’s tariffs. Rehn didn’t rule out the possibility of interest rates sliding below the neutral rate. “We must analyse all options with an open mind and not a priori rule out rate cuts below the neutral rate, Rehn said in an event, Reuters reported.
Technical Analysis: EUR/USD strives to hold 1.1300
EUR/USD returns above the key level of 1.1300 on Friday from its two-week low of 1.1265 posted on Thursday. The major currency pair rebounded after attracting bids near the 20-day Exponential Moving Average (EMA) around 1.1260.
The 14-day Relative Strength Index (RSI) falls inside the 40.00-60.00 range, indicating that the bullish momentum is concluded for now. However, the upside bias still prevails.
Looking up, the psychological level of 1.1500 will be the major resistance for the pair. Conversely, the 25 September high of 1.1214 will be a key support for the Euro bulls.
(This story was corrected on May 2 at 10:16 GMT to say, in the first bullet and first paragraph, that the EUR/USD pair trades near 1.1300, not 1.3300. It was also corrected to say that analysts were expecting the Eurozone’s HICP at 2.1%, not 2.2%.)
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