USD Gains Ground as US Jobs Data Approaches and French Politics Stir

Traders are closely monitoring movements in the foreign exchange markets as the United States Dollar (USD) begins to recover losses following Jerome Powell‘s dovish remarks at the recent Jackson Hole Symposium. The focus is shifting to the upcoming US labour market data, culminating in a critical Non-Farm Payroll (NFP) report scheduled for release on September 8. This data is expected to significantly impact interest rate expectations.

Currently, the market is pricing in an 89% probability of a rate cut in September and anticipates a total easing of 55 basis points by the end of the year. Strong economic data could shift the likelihood of a September cut to a near-even chance, prompting a more hawkish reevaluation of future interest rates and potentially supporting the USD. Conversely, weaker data could lead traders to increase bets on a third cut by year-end, which would likely put downward pressure on the greenback.

On the European side, the Euro has experienced a decline against multiple currencies, primarily driven by political uncertainty in France. Market dynamics shifted on Monday when the French Prime Minister announced a confidence vote set for September 8, with expectations leaning towards a loss. This turbulence has left the Euro vulnerable, particularly in the absence of significant new economic fundamentals.

Market Sentiment and Expectations

The European Central Bank (ECB) is adopting a more cautious stance regarding future rate cuts. Many ECB members have indicated that substantial negative data will be necessary to prompt further monetary easing. Currently, the market is pricing in only 9 basis points of easing by year-end and 20 basis points by the end of 2026, suggesting that the easing cycle may be nearing its conclusion.

Technical analysis of the EUR/USD pair illustrates the ongoing market dynamics. The daily chart indicates that the EUR/USD pair rejected a major trendline around the 1.1740 level and has since retreated to a key support level near 1.16. This support level has attracted buyers, indicating potential for a rally back towards the trendline. For sellers, a break below this support could open the door for a decline towards the 1.14 level.

Technical Analysis Insights

On the four-hour chart, the bounce from the 1.16 support becomes evident, with the recent swing high at 1.1664 potentially acting as a resistance point. Sellers are expected to step in around this level, creating defined risk opportunities to position for a breakdown below 1.16. Conversely, buyers will aim for a break higher to strengthen bullish positions towards the major trendline.

The one-hour chart reveals a recent swing low around 1.1627, which currently serves as support. As the market approaches key US labour market data, volatility is anticipated, with possible false breakouts complicating price action. Buyers may seek to capitalize on minor support levels, while sellers will aim for a break lower to target a return to the 1.16 support.

Upcoming catalysts include the latest US Jobless Claims figures, set to be released shortly, and the preliminary inflation data for major Eurozone economies, along with the US PCE price index, which will further influence market sentiment.

This analysis was provided by Giuseppe Dellamotta at investinglive.com.