EUR/USD senses downside ahead of NFP

As risk sentiment is still negative and the US dollar index (DXY) has not displayed any sign of exhaustion in the uptrend, consequently, the downside momentum in the EUR/USD could resume sooner.

The EUR/USD is attempting to rebound from below 0.9800, while downside seems to be favored. The Dollar Index, DXY, is expected to stay sideways ahead of the US NFP data, to be released on Friday.

The EUR/USD pair is also attempting to defend the extension of weakness below 0.9790 and is sensing buying interest in the early Tokyo session. The asset is displaying exhaustion in the downside momentum, which could result in a pullback move ahead.

The major could shift into a chartered territory as investors are awaiting the release of the US Nonfarm Payrolls data. As per the consensus, the employment generation data is expected to underperform. The job additions are seen at 250k, lower than the prior release of 315k. The US labor market is extremely tight; so, jobs will continue to rise but at a diminishing rate.

Apart from that, the Average Hourly Earnings data will be of utmost importance. The projections display a downward shift to 5.1%, 10 basis points (bps) lower than the prior release. Price pressures in the US economy have yet not displayed a meaningful downward shift yet, therefore, lower earnings won’t be able to offset the higher payouts by the households.

Odds of a bigger rate hike by the Fed have become strong as Fed Governor Christopher Waller crosses wires on Thursday, stating that he sees little reason to slow down the policy tightening pace by the central bank. He further added that “Inflation is far from the FOMC’s goal and not likely to fall quickly,”

On the Eurozone front, the discussions over the implementation of a price cap for Russian oil shipments for third countries with G7 countries will stretch to work out the exact mechanism to set a specific cap, EU officials told Reuters on Thursday.

On the economic data front, weaker Eurozone Retail Sales data weakened the shared currency bulls. The Retail Sales data is contaminated with inflationary pressures but still has declined by 2% versus the projections of a decline of 1.7%.