EUR/USD holds losses as the focus shiifts to the UD NFP report

EUR/USD extends losses for the fifth consecutive day and trades at 1.1525 at the time of writing on Thursday after a sharp reversal from levels near 1.1600 on Wednesday. The US Dollar’s (USD) positive reaction to a hawkishly tilted Federal Reserve (Fed) Minutes and traders’ cautiousness ahead of the long-awaited US Nonfarm Payrolls (NFP) report for September have boosted the Greenback across the board.

The Minutes of October’s Federal Market Open Committee (FOMC) meeting revealed on Wednesday that many Fed officials were against cutting interest rates, concerned that it might compromise the fight against inflation and deteriorate public trust in the central bank. These comments have cast further doubt about the possibility of back-to-back rate cuts in December.

The chances of a quarter-point interest rate cut at the December 10 meeting decline below 30%, according to the CME Group’s FedWatch tool, from 50% on Wednesday, and above 90% one month ago. The US Dollar has firmed up in the meantime.

In the Eurozone, Construction Output data showed that the sector accelerated its decline in September. Later on the day, the German Bundesbank Monthly Report, and November’s preliminary Consumer Confidence reading released by the European Commission might give some further guidance to the Euro (EUR). In the US, the focus will be on September’s Nonfarm Payrolls report and the Philadelphia Fed Manufacturing Survey.

Daily digest market movers: The Dollar rallies on as Fed easing hopes recede

• The Minutes of the last Fed meeting reflected a divided committee in October, with some policymakers showing their preference to leave interest rates unchanged and others rejecting an interest rate cut outright. This, along with the lack of official data after a 43-day government shutdown, has prompted investors to cut back hopes of a rate cut by the central bank in December, which is underpinning the US Dollar.
• In Japan, Finance Minister Satsuki Katayama affirmed that she did not talk about foreign exchange in the meeting with Bank of Japan (BoJ) Governor Kazuo Ueda, which has been interpreted by the markets as a sign that the authorities are not planning to step in so far, and boosted the US Dollar to near year-to-date highs against the Japanese Yen (JPY).
• The Euro has failed to draw any significant support from improved market sentiment after chipmaker Nvidia reported better-than-expected quarterly earnings, which eased concerns about overvaluations of AI-related companies and triggered a relief rally in Asia.
• Later on Thursday, the delayed September US NFP report is expected to show a net increase of 50,000 new jobs, following a 22,000 rise in August. Average Hourly Earnings are seen growing at a 0.3% monthly rate and 3.7% from September last year, in both cases at the same pace as in August. The Unemployment Rate is expected to remain steady at 4.3%
• At the same time, the Philadelphia Fed Manufacturing Survey is expected to show that business conditions deteriorated for the second consecutive month in November, although to a lesser extent than in October. The index is seen at -3.1 following a -12.8 reading in the previous month.
• Eurozone data released earlier on the day revealed that the region’s Construction Output contracted at a 0.5% rate in September, following a downwardly revised 0.2% fall in August. Year-on-year, the sector’s output declined 0.3%, partially reverting a 1% growth in the previous month
• Later on Thursday, the Conference Board’s preliminary Consumer Confidence Index is expected to have improved for the fourth consecutive month, to a level of -14.0 in November, from a level of -14.2 in October.

Technical Analysis: EUR/USD remains on the defensive, with 1.1500 in sight

The EUR/USD is on a short-term bearish trend after being rejected near 1.1650 last week, with bears testing the 1.1500 support area. The 4-hour Relative Strength Index (RSI) momentum indicator has reached oversold levels, which suggests the possibility of some consolidation. A significant recovery seems off the cards unless the fundamental context changes radically.

At the time of writing, EUR/USD has found some support right above the 1.1500 psychological level. Further down, the pair might seek support at the November 5 lows, near 1.1470, ahead of the bottom of a bearish channel on the 4-hour chart coming from late-September, now around 1.1430.

To the upside, November 18 and 19 highs in the area of 1.1600 are likely to challenge bulls ahead of the top of the bearish channel, which now lies around 1.1630. An unlikely bullish move past that area would bring the October 28 and 29 highs, near 1.1670, into focus.