Euro weakens to near 1.1200 as traders await US jobs data
- EUR/USD softens to around 1.1215 in Friday’s early Asian session.
- Hawkish remarks from ECB policymakers might help limit the Euro’s losses.
- Traders brace for the US September jobs data on Friday for fresh impetus.
The EUR/USD pair loses ground to near 1.1215 during the early Asian session on Friday, pressured by a cautious mood. However, the potential downside for the pair might be limited amid the hawkish stance from the European Central Bank (ECB). All eyes will be on the US September jobs data later on Friday.
ECB Governing Council member Joachim Nagel said on Tuesday that the central bank will probably increase borrowing costs next month due to the worsening outlook for inflation. Meanwhile, ECB policymaker Klaas Knot said that the central bank will likely have to continue with a hawkish stance and be wary of inflation shocks. Economists expect a final move in rates next month, though markets see tightening continuing beyond that, into 2027.
Lower US Treasury yields could weigh on the Greenback and act as a tailwind for the major pair. The two-year yield, which is more sensitive to interest rate expectations, fell about 10 basis points (bps) overnight to 4.47%.
The move in bonds also reflected a repricing of Federal Reserve (Fed) expectations, with Fed funds futures scaling back the probability of a 25 bps interest rate hike in December to around 70% from more than 70.9% on Thursday, according to the CME FedWatch tool.
Traders will take more clues from Friday's US jobs data to gauge the Fed's rate path. Economists expect the Nonfarm Payrolls (NFP) to show a rise of 65,000 jobs in September, while the Unemployment Rate is projected to stay unchanged at 4.2% during the same period.
"Recent data suggests improvement in the labor market, and we expect that to continue with this report," said MUFG analysts, referring to the non-farm payrolls data.
Euro inflation data anchors swaps as Euro and US breakevens hit two-month lows
Analysts at Deutsche Bank note that a relatively quiet data calendar still delivered an important signal on price dynamics, with the release of the Euro Area flash CPI print for October. They highlight that the reading "came in as expected by the consensus, with headline inflation up to a 3-year high of +4.0% in October, whilst core inflation remained at +2.5%." In their view, this was accompanied by a sharp repricing in near-term inflation expectations, as "that led to a huge decline in inflation expectations, with the Euro 1yr inflation swap (-25.9bps) down to a two-month low of 3.10%, whilst the 1yr US inflation swap (-24.9bps) hit a two-month low of 2.16%."
On the rates side, Deutsche Bank points out that the move in inflation swaps coincided with a strong rally in European sovereign bonds. They report that "yields on 10yr bunds (-5.8bps) fell to 3.27%, whilst 10yr OATs (-17.6bps) saw their biggest daily decline since April, falling to 4.77%." This compression also fed through to the core-periphery spread, with the bank noting that "that also pushed the Franco-German 10yr spread down by -11.8bps to 150bps, marking its tightest level in the last couple of weeks."
Lagarde leans hawkish as inflation risks stay in focus
ECB President Lagarde’s speech scores 6.2/10 on FXS Speechtracker, modestly above the historic average of 5.6/10, pointing to a slightly more impactful and hawkish tone. Emphasis that it is “still necessary to apply tools to avoid inflation running away” and that shocks are hard to disentangle suggests the ECB remains biased toward keeping policy tight, even as uncertainty around supply and demand dynamics persists.
Comments that US tariffs are unlikely to be revisited quickly and that US mid-term votes may affect trade only over time underline a cautious stance on external risks, with potential implications for the Euro via growth and trade channels. The reference to the energy shock and AI pulling in opposite directions highlights a complex backdrop in which the ECB is likely to stay vigilant, reinforcing a mild upside bias for the Euro as markets price in sustained inflation-fighting resolve.
Technical Analysis: EUR/USD retains a negative bias below the 100-day SMA
In the daily chart, EUR/USD holds a bearish near-term tone as spot remains capped beneath the 100-day simple moving average (SMA). Price sits just under the upper Bollinger Band, suggesting topside pressure, while it trades above the Bollinger middle band, which now acts as initial support. The Relative Strength Index (14) at 46.7 stays below the midline, hinting at subdued bullish momentum and reinforcing the idea of a recovery that is still constrained by overhead supply.
On the topside, immediate resistance is located at the upper Bollinger Band around 1.1260, followed by a more meaningful barrier at the 100-day SMA near 1.1415. On the downside, first support is seen at the Bollinger middle band at 1.1195, ahead of a lower protective zone at the Bollinger lower band around 1.1130, where sellers could pause before attempting fresh lows.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
Euro FAQs
The Euro is the currency for the 20 European Union countries that belong to the Eurozone. It is the second most heavily traded currency in the world behind the US Dollar. In 2022, it accounted for 31% of all foreign exchange transactions, with an average daily turnover of over $2.2 trillion a day. EUR/USD is the most heavily traded currency pair in the world, accounting for an estimated 30% off all transactions, followed by EUR/JPY (4%), EUR/GBP (3%) and EUR/AUD (2%).
The European Central Bank (ECB) in Frankfurt, Germany, is the reserve bank for the Eurozone. The ECB sets interest rates and manages monetary policy. The ECB’s primary mandate is to maintain price stability, which means either controlling inflation or stimulating growth. Its primary tool is the raising or lowering of interest rates. Relatively high interest rates – or the expectation of higher rates – will usually benefit the Euro and vice versa. The ECB Governing Council makes monetary policy decisions at meetings held eight times a year. Decisions are made by heads of the Eurozone national banks and six permanent members, including the President of the ECB, Christine Lagarde.
Eurozone inflation data, measured by the Harmonized Index of Consumer Prices (HICP), is an important econometric for the Euro. If inflation rises more than expected, especially if above the ECB’s 2% target, it obliges the ECB to raise interest rates to bring it back under control. Relatively high interest rates compared to its counterparts will usually benefit the Euro, as it makes the region more attractive as a place for global investors to park their money.
Data releases gauge the health of the economy and can impact on the Euro. Indicators such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can all influence the direction of the single currency. A strong economy is good for the Euro. Not only does it attract more foreign investment but it may encourage the ECB to put up interest rates, which will directly strengthen the Euro. Otherwise, if economic data is weak, the Euro is likely to fall. Economic data for the four largest economies in the euro area (Germany, France, Italy and Spain) are especially significant, as they account for 75% of the Eurozone’s economy.
Another significant data release for the Euro is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period. If a country produces highly sought after exports then its currency will gain in value purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.
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