Fundamental Overview
The USD continues to be under pressure as the positive tariffs talks on Monday eased the trade war fears and weighed on the greenback. In fact, trade war fears have been the only thing keeping the bid under the USD as interest rate expectations and economic data took the second place in importance.
As a reminder, the repricing in rate cuts expectations reached the peak after the last US NFP report and then the market returned into a dovish pricing following the benign US inflation data (the market is still pricing roughly two rate cuts for 2025).
Today, we get the January NFP and it could be another good report. That might lead to a short-term relief rally for the US Dollar but as we’ve seen with the US Job Openings data, the labour market continues to normalise and it’s not a source of inflationary pressures anymore. So, the potential US Dollar rally might be faded.
That doesn’t mean that the Fed will cut more than the two times projected for this year, but it also doesn’t call for a more hawkish repricing yet. So, the path of least resistance for the US Dollar (barring negative tariffs outcomes) might remain to the downside as a more dovish path going forward looks more probable.
On the EUR side, the ECB recently cut interest rates by 25 bps as expected and overall we didn’t get anything new from the event as the central bank remains data dependent regarding the pace and magnitude of cuts The latest PMIs showed an encouraging rebound in activity and the news of a peace deal in the Russia-Ukraine war started to gather momentum. That should be positive for the economy.
EURUSD Technical Analysis – Daily Timeframe
EURUSD Daily
On the daily chart, we can see that EURUSD opened lower on Monday following the tariffs over the weekend but eventually bounced back strongly as positive talks led to an easing in trade war fears. The price is now trading between the 1.0344 support and the 1.0447 resistance. The buyers will look for a break higher to extend the rally into the 1.06 handle, while the sellers will look for a break lower to target the 1.0222 level next.
EURUSD Technical Analysis – 4 hour Timeframe
EURUSD 4 hour
On the 4 hour chart, we can see more clearly the recent price action and the trading between the key levels. There’s not much we can add here as buyers and sellers will lean into those key levels or look for breakouts.
EURUSD Technical Analysis – 1 hour Timeframe
EURUSD 1 hour
On the 1 hour chart, we can see that we have a minor intraday resistance around the 1.04 handle. From a risk management perspective, it would be much better to wait for the US NFP report as any technical setup can be invalidated in a blink of an eye when the data gets released. The red lines define the average daily range for today.
Upcoming Catalysts
Today we conclude the week with the US NFP report.