EUR/USD weakens towards 1.1650 amid US labor market pressure

The EUR/USD pair experiences a consecutive session decline, retreating to 1.1652 (-0.19%) as stronger employment indicators support the Dollar. The Dollar Index (DXY) breaks the 200-day moving average level (98.87), pointing towards an extension to 99.00 if the strength consolidates. The Eurozone confirms that the ECB’s stimulus cycle has ended, with producer prices contracting in December.

Dollar Strength Drives EUR/USD Retreat Amid Mixed European Outlook

The foreign exchange market reaffirms its defensive bias towards the US Dollar as the Non-Farm Payrolls report approaches. US labor data surprised positively: Wednesday’s ADP figures showed robust performance, while Challenge’s layoff report revealed that companies significantly reduced layoffs in December (35.553 vs. 71.321 in November).

Initial unemployment claims reached 208K for the week of January 3, below expectations of 210K, reinforcing the narrative of a gradually recovering labor market. This series of positive data has pushed the DXY to quote at 98.91 (+0.19%), surpassing the key technical support at the 200-day simple moving average at 98.87, opening the door to a move toward the 99.00 zone.

In contrast, Europe faces a less favorable environment. The Economic Sentiment Indicator deteriorated in December, pressured by weakness in services, retail, and consumer confidence. The Eurozone Producer Price Index (IPP) accelerated to 0.5% monthly (vs. 0.1% expected), though the year-over-year reading showed contraction at -1.7%, confirming that disinflationary momentum persists and reducing the likelihood of new ECB rate hikes.

Dovish comments from Fed Governor Stephen Miran were widely ignored by participants who have already priced in two rate cuts, according to Prime Market Terminal data. Meanwhile, Treasury Secretary Scott Bessent intensified pressure on the Federal Reserve to accelerate monetary easing to support economic growth.

US Economic Data Outshine European Agenda

US Goods and Services Trade Balance surprised positively in October with a deficit of $29.4 billion, a sharp decline from $48.1 billion and well below the projection of $58.9 billion. The improvement was driven by a notable contraction in imports, especially pharmaceuticals.

The Federal Reserve Bank of New York’s Consumer Expectations Survey showed a mixed outlook: one-year inflation expectations rose to 3.4% from 3.2% in November, while three- and five-year projections remained anchored at 3.0%, reflecting controlled medium-term inflation concerns.

In Germany, factory orders for November exceeded expectations with a 5.6% monthly increase (vs. estimated 1%), significantly improving from 1.6% in October. Consumer confidence and business climate in the Eurozone also improved in December, though insufficient to offset the global demand weakening perceived by traders.

Technical Analysis: EUR/USD Seeks Critical Pivots Amid Downward Pressure

From a technical perspective, EUR/USD is on a marked downward trajectory, approaching closing below Wednesday’s low at 1.1672. The Relative Strength Index (RSI) indicates a neutral to bearish trend, suggesting buyers have lost control of the price. Immediate support is at the 50-day simple moving average at 1.1640, followed by the critical 200-day SMA at 1.1561. If sellers push the pair below 1.1561, a deeper bearish extension opens.

To reverse the negative bias, buyers would need to recover the 1.1700 level as the first target. A daily close above this level would open the possibility of extending rallies toward the 20-day simple moving average at 1.1733. However, in the short term, downward pressure seems dominant given the unfavorable macroeconomic context for the Euro and the sustained bullish momentum of the US Dollar.

Currency Movement Summary: The Euro was the strongest currency against the Canadian Dollar this week (+0.86%) but suffered notable losses against the US Dollar (-0.56%), British Pound (-0.39%), Japanese Yen (-0.48%), and Swiss Franc (-0.26%). The EUR/USD pair remains under pressure as traders adjust positions ahead of US labor data that could confirm or disprove the observed Dollar strength this session.