EUR/USD trades with caution as US NFP looms large

• EUR/USD trades cautiously around 1.0300 as investors await the US NFP data for December, which will influence the Fed interest rate outlook.
• US President-elect Donald Trump is expected to declare a national economic emergency.
• The Euro gains despite traders price in four interest rate cuts by the ECB this year.

EUR/USD trades subduedly around 1.0300 in Friday’s European session. The major currency pair trades cautiously as investors await the United States (US) Nonfarm Payrolls (NFP) data for December, which will be published at 13:30 GMT. Investors will pay close attention to the US official employment report as it will influence market expectations about when the Federal Reserve (Fed) will deliver its first interest rate cut this year.

Economists expect that fresh 160K workers were added to the labor force in December, fewer than 227K in November. The Unemployment Rate is estimated to have remained steady at 4.2%. Month-on-month Average Hourly Earnings are expected to have risen at a slower pace of 0.3% from the former release of 0.4%, with annual figures growing steadily by 4%.

Signs of cooling labor market conditions would force traders to pare bets supporting the Fed to keep interest rates unchanged in the March meeting at their current range of 4.25%-4.50%. Meanwhile, traders are confident that the central bank will maintain the status quo later this month, according to the CME FedWatch tool.

Ahead of the US NFP data, the US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, is flattened above 109.00. The performance of the US Dollar (USD) has remained firm as President-elect Donald Trump is expected to declare a national economic emergency to provide legal justification for preparing an import tariff plan for the nation’s allies and adversaries, CNN reported.

Daily digest market movers: EUR/USD flattens ahead of US NFP data

• EUR/USD is expected to be purely driven by the US Dollar on Friday as the US NFP data is on the horizon. Meanwhile, the Euro (EUR) is outperforming against a majority of its peers, except the Japanese Yen (JPY). The Euro rises even though traders have priced in four interest rate cuts by the European Central Bank (ECB), which will come in every meeting by summer.
• ECB policymakers are comfortable with firm dovish bets as inflationary pressures in the Eurozone are broadly under control. However, price pressures rose expectedly in December. On Wednesday, ECB policymaker and Governor of the Bank of France François Villeroy said that price pressures were expected to tick higher in December, however, interest rates will continue heading towards the neutral rate “without a slowdown in the pace by summer” if the upcoming data confirm that the “pullback in price pressures won’t continue”.
• Meanwhile, a weak Eurozone economic outlook has also boosted bets supporting more interest rate cuts. Investors expect the old continent to face a trade war with the US as incoming policies from President-elect Donald Trump will be highly protectionist and weigh on the Eurozone’s export sector.

Technical Analysis: EUR/USD stays above 1.0200

EUR/USD trades near the key support plotted from the September 2022 high of 1.0200 on the weekly chart. The outlook of the major currency pair is broadly bearish as the 20-week Exponential Moving Average (EMA) at 1.0595 is declining. 

The 14-week Relative Strength Index (RSI) slides to near 30.00, indicating a strong downside momentum. However, a slight recovery cannot be ruled out as the momentum oscillator has turned oversold.

Looking down, the pair could find support near the round level of 1.0100. Conversely, the January 6 high of 1.0437 will be the key barrier for the Euro bulls.