U.S. Jobs Market Runs On All Cylinders. Fed Pause Ahead?
EUR/USD Shows Bullish Divergence. Is a Rally in the Cards Next?
The Non-Farm Employment report released Friday showed that 256K new jobs were created, surpassing the consensus of 164K. The better-than-anticipated report drastically increases the chances of the Fed taking a break from slashing the interest rate.
The Unemployment Rate decreased from the previous 4.2% to 4.1% and the Average Hourly Earnings increased by 0.3%, matching the consensus. This paints a favorable picture of the U.S. labor market and makes the case for the Fed to keep the rate unchanged.
At the time of writing, the CME FedWatch tool shows a 93.6% probability that the rate will remain unchanged at the next FOMC Meeting that is scheduled to take place on January 29.
Economic Calendar Highlights
The first release of the week will be the U.S. Producer Price Index (PPI) scheduled for Monday at 1:30 pm GMT. The PPI has inflationary implications because a higher price charged by the producer will be eventually passed on to the consumer.
And speaking of inflation, the main indicator will come out Wednesday at 1:30 pm GMT: the Core Consumer Price Index (CPI). Inflation is expected to drop 0.2% on a monthly basis, while the yearly figure might increase to 2.9% from the previous 2.7%.
The last major release of the week will be the U.S. Retail Sales scheduled for Thursday at 1:30 pm GMT. Sales made at retail levels represent the main part of overall economic activity, which means that higher numbers suggest a thriving economy.
Technical Outlook – EUR/USD
After a brief move above 1.0350 resistance, the dollar bulls regained control and managed to take the pair into 1.0200 support. The move was mainly boosted by the better-than-expected NFP report and speculation that the Fed will keep rates at current levels for longer than initially anticipated.
The RSI bounced on its 30 level, which suggests oversold but it did not go below it since late November 2024. However, the indicator is showing bullish divergence – the price is making lower lows while the RSI is making higher lows (compared to the November low). This suggests that we will likely see a push north in the near future.
The levels to watch are 1.0220 – 1.0200 as immediate support, while the first confirmed resistance is located at 1.0350. The bearish trend line drawn from the 1.1200 top and the 50-day MA will also provide resistance if touched. The week ahead is filled with a few possible market movers, so keep an eye on the fundamental side that can overshadow the technical aspect.
