Will EUR/USD Break Out as Fed Rate Cut Odds Soar and Eurozone Sentiment Falters?

The EUR/USD pair held steady on Monday, hovering near Friday’s closing levels after a robust 1.52% rally sparked by a disappointing U.S. jobs report. The weak Nonfarm Payrolls (NFP) data, coupled with significant downward revisions to May and June figures, has fueled expectations for a Federal Reserve rate cut in September, pressuring the U.S. Dollar. However, souring investor confidence in the Eurozone has capped the Euro’s gains, leaving the currency pair in a tight range as markets weigh competing economic signals.

Friday’s NFP report revealed just 73,000 jobs added, far below expectations, with May and June payrolls revised down by a combined 258,000. This prompted President Donald Trump to dismiss the Bureau of Labor Statistics Commissioner, raising concerns about data credibility. Alongside a contracting ISM Manufacturing PMI, the labor market’s weakness has boosted market bets on Fed easing, with a 90% probability of a 25 basis point rate cut in September and 59 basis points of easing priced in for 2025. This dovish shift has kept the U.S. Dollar on the defensive, supporting the EUR/USD’s recent uptick.

In the Eurozone, the Sentix Investor Confidence Index plummeted to -3.7 in August from 4.5 in July, signaling growing pessimism. The survey highlighted a “tariff agreement” as a significant damper on sentiment, despite the EU’s decision to suspend trade countermeasures against the U.S. for six months as part of a broader U.S.-EU trade deal. This souring mood has restrained the Euro’s ability to capitalize on the Dollar’s weakness, keeping the EUR/USD pair in a consolidation phase.

U.S. economic data added to the cautious outlook, with June Factory Orders dropping 4.8% month-on-month, driven by a slump in commercial aircraft orders. This matched expectations but underscored ongoing manufacturing pressures from tariff-related cost increases. Looking ahead, the U.S. economic calendar remains light, with the ISM Services PMI, Jobless Claims, and Consumer Sentiment data set to influence markets. Fed speakers may also provide clues on policy direction, further shaping EUR/USD dynamics.

From a technical perspective, the EUR/USD faces a critical juncture. Failure to break above 1.1600 could keep the pair in consolidation, with bearish momentum signaled by the Relative Strength Index (RSI) trending toward neutral. A breakout above 1.1600 could target the 20-day Simple Moving Average at 1.1630, followed by 1.1650 and 1.1700. Conversely, a drop below the 50-day SMA at 1.1576 might push the pair toward 1.1550 or August’s low of 1.1391. As Fed rate cut bets and Eurozone sentiment diverge, the EUR/USD remains poised for volatility.