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EUR USD pares recent gains after US employment data supports dollar

Article By: ,  Financial Analyst
February 5, 2016 9:09 PM

The non-farm payrolls and other employment data released on Friday provided a mixed message as to the employment situation in the US, but the positive aspects of the numbers have led some to believe once again that the Fed may indeed raise interest rates further in 2016.

Although the headline data of jobs added in January at 151,000 amounted to a substantial disappointed when compared to prior consensus expectations of around 190,000, average hourly earnings grew by a significantly better-than-expected 0.5%. In addition, the unemployment rate inched down to 4.9%, besting prior estimates of 5.0%. Apparently, these figures, especially with regard to wage growth, were enough to convince dollar speculators that another Fed rate hike in the foreseeable future may potentially be back on the table.

With the dollar rising once again on Friday after having plunged sharply for most of the past week, EUR/USD pulled back from its 1.1244 high. Prior to this pullback, the currency pair had been climbing in a steep trajectory from its key 1.0800-area support base in the beginning of the week. During the course of this rise, EUR/USD broke out above its 50-day moving average, 200-day moving average, and the major 1.1100 resistance level, as the dollar weakened dramatically.

At least for the past week, the US dollar side of the currency pair has been the primary driver of the strong exchange rate movement for EUR/USD. The question now is whether the US employment data released on Friday is positive enough to warrant additional rate hikes by the Fed this year, given that global financial market turmoil continues and inflation remains pressured, among other factors that are not conducive to rising interest rates.

If, in fact, the employment data is not enough to move the Fed towards further monetary tightening in the near future, the dollar could have further to fall and the EUR/USD could have further to rise, especially since the currency pair has broken out above the key 1.1100 level.

In the event of sustained trading above that 1.1100 level, a further weakening dollar could provide the impetus for a EUR/USD rise towards the 1.1450 resistance area. Any continued upside momentum for the currency pair could then see a target towards the 1.1700 resistance level. To the downside, a return below 1.1100 should invalidate the bullish scenario, placing the long-term downtrend back into play with an initial downside support objective back down at the 1.0800 level.

 

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