**US Dollar Faces Pressure Ahead of NFP Release: Outlook for EUR/USD and GBP/USD**
*Originally published by James Hyerczyk on FX Empire*
The US dollar continues to face bearish pressure as investors remain cautious ahead of the upcoming Non-Farm Payrolls (NFP) report scheduled for release on Friday. Market participants are closely watching labor market data to gauge potential monetary policy decisions from the Federal Reserve. The dollar index, which measures the greenback against a basket of major currencies, has been retreating from recent highs, primarily driven by mixed economic data and speculation over rate cuts later in the year.
With the Federal Reserve adopting a more data-dependent approach, the market focus has shifted sharply to high-impact economic releases such as the ADP Employment Change and jobless claims. These reports have created increased market volatility, influencing short-term trading patterns in major currency pairs like EUR/USD and GBP/USD.
This article explores the current conditions affecting the US dollar, analyzes technical and fundamental drivers, and presents projections for the euro and British pound against the dollar ahead of the US jobs report.
**Key Economic Drivers Influencing the US Dollar**
The bearish trend in the US dollar is influenced by several macroeconomic variables. The currency has been highly sensitive to employment data, inflation expectations, and Federal Reserve commentary.
**1. Soft ADP Employment Data**
– The ADP National Employment Report released earlier this week showed weaker-than-expected private payroll growth in June.
– Actual increase: 150,000 jobs
– Market forecast: 170,000 jobs
– This slowdown in private hiring raises questions about broader economic momentum and points to cooling in the labor market.
**2. Jobless Claims Support Soft Labor Narrative**
– Initial jobless claims have remained elevated, suggesting reduced labor market tightness.
– A persistent rise in weekly claims signals that employers may be reducing hiring or initiating layoffs, contributing further to concerns about a softening economic outlook.
**3. Federal Reserve’s Rate Outlook**
– The Fed has maintained a neutral stance, but recent data increases speculation around potential rate cuts later in 2024.
– Markets currently price in one or two rate cuts before the end of the year, although timing remains uncertain.
– Federal Reserve officials have communicated that they are assessing ongoing inflation trends and employment conditions before making policy adjustments.
**4. ISM Services Index Disappoints**
– The ISM Non-Manufacturing PMI dropped to 48.8 in June, its lowest level since 2020, suggesting a contraction in the service sector.
– A reading below 50 typically indicates economic slowdown.
– This report contributed to a sell-off in the dollar as traders anticipated dovish shifts in monetary policy.
**EUR/USD Outlook: Bullish Bias Builds**
The euro edged higher against the US dollar this week, driven by both fundamental and technical dynamics. Continued dollar weakness has supported the EUR/USD pair, while investors also await confirmation of economic recovery within the Eurozone.
**Fundamental Drivers:**
– European Central Bank (ECB) officials remain cautious about further rate moves, with inflation still not fully anchored to the bank’s 2% target.
– Nevertheless, Eurozone inflation data for June came in higher than expected, reducing the likelihood of immediate rate cuts.
– Political uncertainty remains in focus following recent elections in France, but the market has largely priced in the results.
**Technical Analysis:**
– EUR/USD broke above the 1.0800 level, a key psychological resistance point.
– Current support lies at 1.0785, while resistance targets align near 1.0885 and 1.0900.
– The currency pair remains above the 50-day moving average, signaling an upward trend.
– Momentum indicators such as the Relative Strength Index (RSI) are pointing toward continued buying interest.
**Future Considerations:**
– A strong NFP report could undermine EUR/USD gains if it leads markets to delay expectations for Fed rate cuts.
– On the other hand, weak job
Read more on EUR/USD trading.