The EUR/USD is back at the critical 1.03 support level ahead of Friday’s non-farm payroll release. This level has proven significant, and the jobs report is set to bring high volatility, given this pair is the most traded against the USD.
Jobs Report Reaction Key, 1.044 Target if Bounce
The reaction to the jobs data will undoubtedly be significant, as is typical. This makes the EUR/USD pair a focal point, even for those not directly trading it. Its movement could serve as a barometer for how the US dollar will perform against other currencies. If the pair does manage to rebound from the 1.03 support, the 1.044 area will become an immediate hurdle to watch.
The Preferred Strategy: Fading Rallies
The current trading strategy leans towards fading any Euro rallies. This approach has been consistently employed for the past couple of weeks, and it’s expected to continue unless there is a surprising weakness revealed in the US jobs report. Any significant shift away from this strategy would likely require a jarring development that would convince the market the Federal Reserve might begin cutting interest rates. Currently, this scenario seems unlikely.
The Driving Force: Bond Yields
The core issue remains the divergence in bond yields. US interest rates are surging, with similar trends appearing in the UK. Meanwhile, the European Central Bank is prepared to cut rates if needed. This favors continued USD strength. Look for a Euro bounce to buy USD cheaper. The expectation is that the EUR/USD will ultimately target parity again.
Key takeaways:
- 1.03 is a vital support level: Watch closely for a break or bounce.
- Non-Farm Payroll is the catalyst: Friday’s volatility will be high.
- Fading Euro rallies: The preferred strategy unless data surprises.
- Bond Yields are the driver: US rates strength favors the USD.
- Parity is the long-term target: Expect a possible move back to 1.00.
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