EUR/USD trades cautiously above 1.1000 ahead of US NFP

• EUR/USD trades cautiously above 1.1000 as focus shifts to US NFP.
• A sharp expansion in prices paid by ISM services in the US has renewed fears that price pressures will remain persistent.
• ECB Schnabel remained concerned about the growing economic risks in the euro area.

EUR/USD is trading in a tight range above the 1.1000 psychological support in the European session on Friday. The major currency pair is consolidating near 1.1030, while the US dollar (USD) is down ahead of the United States (US) Non-Farm Payrolls (NFP) report for September due at 12: 30 GMT.

The US Dollar Index (DXY), which tracks the greenback against six major currencies, is down slightly to 101.80. However, it maintains this week’s sharp recovery from the yearly low near 100.10.

Investors will pay close attention to the US NFP report as it will likely influence the pace of Federal Reserve (Fed) policy easing for the rest of the year. Economists estimate that US employers hired 140,000 new workers, down slightly from 142,000 in August. The unemployment rate is expected to remain steady at 4.2%.

Average hourly earnings are estimated to have risen at a slower 0.3% month-over-month pace from 0.4% in August, with annual numbers up 3.8%.

Looking at the CME FedWatch tool, traders appear to have already adjusted expectations of a Fed rate cut for November. Data on 30-day Federal Funds futures prices showed the probability of a further 50 basis point (bps) interest rate cut in November fell to 33% from 53% a week ago. Prospects for a big Fed rate cut for November have dimmed sharply after upbeat ADP Employment Change data for September and JOLTS Job Openings data for August.

Meanwhile, growing risks that inflation will remain persistent also forced traders to cut bets on a jumbo Fed rate cut. Thursday’s ISM Services PMI report for September showed its Price Paid component – ​​which indicates a change in the cost of inputs – surprisingly expanded at a faster pace to 59.4. The services PMI – which gauges activities in the service sector that accounts for two-thirds of the economy – rose at a robust pace to 54.9 from estimates of 51.7 and August’s reading of 51.5.

Daily Market Reasons: EUR/USD remains on the back foot amid gloomy market mood

• EUR/USD is trading sideways near 1.1030 in European trading hours after finding temporary support near 1.1000 on Thursday. The major currency pair is struggling to end its five-day losing streak. However, the pair could face more pressure as doomsday market sentiment and rising conflict in the Middle East continue to weigh on perceived risk assets such as the euro (EUR).
• Conflicts between Iran and Israel deepened after the killing of Hezbollah leader Hassan Nasrallah, in retaliation for which Tehran launched hundreds of ballistic missiles at military bases in the Tel Aviv region.
• Meanwhile, growing speculation that the European Central Bank (ECB) will cut interest rates again on October 17 pushed the euro back. Market expectations for an ECB interest rate cut have risen amid deepening concerns over eurozone growth and the continent’s harmonized index of consumer prices (HICP) falling below the bank’s 2% target in September.
• ECB board member Isabel Schnabel, who has remained an outspoken hawk, raised concerns about growth risks in a speech on Wednesday. “We can’t ignore the headwinds to growth,” Schnabel said. She also remained confident that inflation will fall sustainably to 2% in due course with reduced labor demand and further progress in disinflation.

Technical analysis: EUR/USD is trying to gain ground near 1.1000

EUR/USD remains on the backside near the psychological support of 1.1000. The short-term outlook for the major currency pair has weakened as it is trading slightly below the 50-day exponential moving average (EMA) which is around 1.1043.

The shared currency pair continues to maintain the breakout of the Rising Channel pattern on the daily chart, which occurred in the third week of August. A new downside would appear if the pair breaks below the top line of the pattern.

The 14-day Relative Strength Index (RSI) fell to near 40.00, suggesting weakening momentum.

On the downside, a move below 1.1000 will lead to a further decline towards the 200-day EMA around 1.0900. On the other hand, the 20-day EMA at 1.1090 and the September high around 1.1200 will be major resistance areas.