EUR/USD Makes A Decisive Move Above the 50 Daily SMA After Soft US Employment Numbers

EUR/USD turned bearish at 1.1280 in July after making three doji candlesticks at the top on the daily chart, signaling a reversal after the bullish trend. The momentum has been negative, with attempts to reverse the trend failing. Moving averages have contributed to this downward movement, providing resistance during pullbacks.

The 20 SMA (gray) and 50 SMA (yellow) on the daily chart were pushing the highs lower, showing that the selling pressure was strong. The rise in US Treasury rates, as well as positive US economic data, have maintained the USD in demand, while the Eurozone economy appears to be deteriorating. but in the last two weeks, we have seen some weak numbers from the US, such as the employment report released on Friday, which showed that the unemployment rate ticked higher to 3.9% in October.

So, the decline in EUR/USD has stalled and this pair was consolidating between the 20 SMA (gray) at the bottom and the 50 SMA (yellow) at the top. Late this week we saw a strong bullish move though, as the FED refrained from indicating further rate hikes, while the round of economic data from the US on Friday was soft, with ISM services heading into recession while the non-farm employment change missed expectations as shown below.

October 2023 US Employment Data from the Non-Farm Payrolls Report

• Prior +336K (revised to 297K)
• Two-month net revision -101K vs +119K prior
• Unemployment rate 3.9% vs 3.8% expected
• Prior unemployment rate 3.8%
• Participation rate 62.7% vs 62.8% prior
• U6 underemployment rate 7.2% vs 7.0% prior
• Average hourly earnings +0.2% m/m vs +0.3% expected
• Average hourly earnings +4.1% y/y vs +4.0% expected
• Average weekly hours vs 34.4 expected
• Change in private payrolls +99K vs +158K expected
• Change in manufacturing payrolls -35K vs -10K expected
• Household survey -348K vs +86K prior
• Birth-death adjustment +412K vs -119K prior
• Full report

Ahead of this data, the market was pricing in 79 basis points in Fed cuts next year, with the 2-year trading at 4.98%. The report’s specifics are lacking, notably in the household survey. Bond rates have fallen 7 basis points at the two-year tenor and 10 basis points at the ten-year tenor, reaching 4.57%.

The dollar weakened significantly following the announcement, with USD/JPY down 100 pips and similar moves elsewhere. A disappointing ISM services figure tonight would give the market even more confidence that rate rises are having an effect and that the Fed’s next step would be lower. As of now, the Fed funds futures market is pricing in 89 basis points of easing next year.

EUR/USD Live Chart