EUR/USD Finds Support Near 1.0850 Amidst Rate Hike Uncertainty

Introduction:

The EUR/USD currency pair experienced a sharp decline on Thursday but managed to find support and stabilize near 1.0850 early on Friday. As the trading day progresses, attention is turning to whether the pair can reclaim the 1.0900 level, which could potentially set the tone for a higher stretch ahead of the weekend.

Rate Hike Uncertainty in the Eurozone:

Investors have begun to exhibit caution when it comes to pricing in another rate hike by the European Central Bank (ECB) in September. This shift in sentiment weighed on the Euro’s appeal on Thursday, contributing to its decline.

US Economic Data Impact:

In the United States, economic data played a pivotal role in influencing the EUR/USD pair. The Personal Consumption Expenditures (PCE) Price Index in the US largely matched market estimates, alleviating concerns about inflationary pressures. Furthermore, weekly Initial Jobless Claims saw a decline to 223,000 from 232,000, adding to the positive sentiment.

Federal Reserve’s Impact:

Despite the data releases, the probability of the Federal Reserve (Fed) keeping its policy rate unchanged held steady at around 50%. Surprisingly, the US Dollar strengthened, affecting the EUR/USD pair. This unexpected dollar rally could be attributed to profit-taking on the final trading day of August, as US T-bond yields remained relatively stable.

The NFP Factor:

One of the key events on the horizon is the release of Nonfarm Payrolls (NFP) data in the US. Analysts forecast a rise of 170,000 jobs in August, following a less-than-expected increase of 187,000 in July. If the NFP data comes in at or below 150,000, falling short of market consensus for the third consecutive month, the USD might face renewed selling pressure, potentially allowing EUR/USD to regain momentum.

On the other hand, a positive surprise, with an NFP print above 200,000, could boost the US Dollar and keep EUR/USD under bearish pressure as the weekend approaches.

Focus on NFP and Minimal Impact of ISM Manufacturing PMI:

While the US economic calendar also includes the ISM Manufacturing PMI report later in the day, market participants are unlikely to make significant trading decisions based on this data release, given the significance of the NFP report. The jobs data is expected to overshadow any impact the PMI reading might have on currency movements.

Conclusion:

EUR/USD has found support near 1.0850 as uncertainty regarding rate hikes in the Eurozone lingers. The pair’s near-term direction will depend heavily on the outcome of the Nonfarm Payrolls report, with a weaker NFP potentially pushing the pair higher and a stronger NFP keeping it under pressure. Traders and investors will closely monitor these developments as they navigate the currency market ahead of the weekend.