EUR/USD ticks up as impact from US Nonfarm Payrolls wanes

• A moderate risk appetite ahead of a fresh round of US-China trade talks keeps market sentiment buoyed. 
• The Euro is trimming Friday’s losses on a calm trading session on Monday. 
• The US Dollar rallied on Friday after strong NFP figures.

EUR/USD has opened the week on a moderately positive note on Monday, following a significant decline on Friday. The pair is currently trading at 1.1415, having bottomed at 1.1370 on Friday, as the US Dollar (USD) rallied on the back of a better-than-expected US Nonfarm Payrolls (NFP) report.

Data from the US Bureau of Labour Statistics showed on Friday that the US economy created more jobs than expected in May. The Unemployment Rate remained unchanged, and so did wage inflation.

These figures offset the gloomy market expectations, which followed a downbeat ADP employment report and soft manufacturing and services activity data seen earlier during the week. While some data in the employment report continued to highlight that the jobs market is cooling – the previous two months’ gains, for example, were downwardly revised – investors sent the US Dollar higher across the board.

In the absence of first-tier macroeconomic releases at the beginning of the week, the focus has turned to a US-China meeting, due later on Monday in London. The market is welcoming the efforts from the world’s major economies to find a way to normalize their trade relationship, and a mild risk appetite is buoying the Euro.

The highlight of the week will be Wednesday’s US Consumer Price Index (CPI) release, which is expected to show the first impact of US President Donald Trump’s tariff policy on inflation and might help to determine the Federal Reserve’s (Fed) interest-rate path. 

Daily digest market movers: The US Dollar jumped on strong US employment data

• US Nonfarm Payrolls increased by 139,000 in May, slightly beating market expectations of a 130,000 reading. Unemployment remained steady, at 4.2%, tackling fears of an increase to 4.3%, and wage inflation was unchanged at 3.9% against expectations of a decline to 3.7%.
• The overall picture shows a tight labor market with sticky wage inflation, which endorses the Federal Reserve’s most hawkish sector and dampens expectations of a rate cut in the coming months. This view is likely to limit the US Dollar’s weakness.
• The Federal Reserve is on its blackout period ahead of next week’s monetary policy meeting. Futures markets are not foreseeing significant chances of a rate cut: the next one isn’t seen at least until September, and markets expect between one and two cuts in the rest of the year, according to data from the CME Group’s Fed Watch Tool.
• In the Eurozone, also on Friday, the final reading of the first quarter’s Gross Domestic Product was revised higher to a 0.6% quarterly growth and a 1.5% yearly performance from previous estimations of 0.3% and 1.2%, respectively.
• Beyond that, Retail Sales figures showed that consumption grew by 0.1%, in line with expectations, and by 2.3% year-on-year, beating the market consensus of a 1.4% increase. The impact on the Euro, however, was marginal, as all eyes were on the US payrolls report.
• The calendar today is light with only the Eurozone Sentix Investors’ Confidence Index and some ECB policymakers providing some guidance for the Euro.

Technical analysis: EUR/USD looks for direction above 1.1400

EUR/USD is trading on a positive trend, printing higher highs and higher lows since mid-May, but the rejection at around 1.1500 seen last week and a bearish divergence on the 4-hour chart suggest that bulls might be losing steam.

Price action is heading higher on Monday, with bulls likely to be challenged at the June 3 high at 1.1455 ahead of the 1.1500 level.

On the downside, a bearish move below 1.1400 and the June 6 low at 1.1371 would give bears hopes of a deeper correction with potential targets at 1.1315 (May 30 low)  and the 1.1215-1.1220 (May 20 and 28 lows).

Euro FAQs

The Euro is the currency for the 19 European Union countries that belong to the Eurozone. It is the second most heavily traded currency in the world behind the US Dollar. In 2022, it accounted for 31% of all foreign exchange transactions, with an average daily turnover of over $2.2 trillion a day.
EUR/USD is the most heavily traded currency pair in the world, accounting for an estimated 30% off all transactions, followed by EUR/JPY (4%), EUR/GBP (3%) and EUR/AUD (2%).

The European Central Bank (ECB) in Frankfurt, Germany, is the reserve bank for the Eurozone. The ECB sets interest rates and manages monetary policy.
The ECB’s primary mandate is to maintain price stability, which means either controlling inflation or stimulating growth. Its primary tool is the raising or lowering of interest rates. Relatively high interest rates – or the expectation of higher rates – will usually benefit the Euro and vice versa.
The ECB Governing Council makes monetary policy decisions at meetings held eight times a year. Decisions are made by heads of the Eurozone national banks and six permanent members, including the President of the ECB, Christine Lagarde.

Eurozone inflation data, measured by the Harmonized Index of Consumer Prices (HICP), is an important econometric for the Euro. If inflation rises more than expected, especially if above the ECB’s 2% target, it obliges the ECB to raise interest rates to bring it back under control.
Relatively high interest rates compared to its counterparts will usually benefit the Euro, as it makes the region more attractive as a place for global investors to park their money.

Data releases gauge the health of the economy and can impact on the Euro. Indicators such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can all influence the direction of the single currency.
A strong economy is good for the Euro. Not only does it attract more foreign investment but it may encourage the ECB to put up interest rates, which will directly strengthen the Euro. Otherwise, if economic data is weak, the Euro is likely to fall.
Economic data for the four largest economies in the euro area (Germany, France, Italy and Spain) are especially significant, as they account for 75% of the Eurozone’s economy.

Another significant data release for the Euro is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period.
If a country produces highly sought after exports then its currency will gain in value purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.