EUR/USD forecast bearish despite NFP disappointment – Forex Friday

Following this week’s stronger Eurozone GDP and CPI, plus weakness in US GDP and JOLTS jobs opening, the EUR/USD had managed to rebound to 1.0880. Then it found additional support once the US nonfarm payrolls report (NFP) came out, showing a much weaker headline print of 12K instead of 100K expected. This sparked a bit of an extended bounce in the EUR/USD as US dollar fell across the board. However, as I have mentioned previously this week, the dollar weakness was likely to be short-lived - and so it proved, as the EUR/USD came off its earlier highs, while the USD/JPY hit a new high on the day as bond yields rebounded. Gold, too, turned lower. Today’s data release was never going to change the Fed’s decision to cut rates next week by 25 basis points, which is now a forgone conclusion. More specifically, market participants are closely watching the potential impact of a Trump victory on European and Chinese assets, given the possibility of renewed tariffs. This is the primary factor affecting the EUR/USD forecast, likely limiting gains to around 1.0900 and exposing further downside in the near-term outlook.

NFP weaker but does it matter?

October payrolls came in weak at 12K, far below the expected 100K, but wage growth was a bit stronger than anticipated at 0.4% versus the expected 0.3%. The unemployment rate held steady at 4.1%, as forecasted. What really catches my eye, though, is the significant two-month revision, down by 112K. August was initially reported at 142K but has been revised down to 78K—not due to a hurricane or a strike as would have been the case behind this month’s much weaker headline print.

Private payrolls also disappointed, showing a decline of 28K against an expected gain of 70K. Without the boost from government jobs, October would have marked the first month of negative payrolls since December 2020. And as the BLS notes, it’s "not possible to quantify the effect of storms on payrolls."

Looking ahead, I doubt the dollar is in for a major correction with the US election so close. Plus, there’s a chance the markets—and the Fed—might downplay softer payroll numbers, acknowledging that recent severe weather may have temporarily impacted jobs.

As a result, I doubt the disappointing data has materially changed the EUR/USD forecast today.

US election uncertainty keeping EUR/USD forecast downbeat

The euro is feeling the pressure as odds rise for a potential Trump win in the upcoming US presidential election, which could steer the EUR/USD forecast into bearish territory. Trump's policies, particularly tax cuts and tariffs, tend to support the dollar by encouraging economic growth and stoking inflationary pressures. This inflation outlook can boost the dollar's appeal, likely pushing the EUR/USD lower as markets anticipate a less dovish US monetary policy outlook, despite today’s weaker US jobs data. On top of that, any trade tariffs affecting the Eurozone could further weaken the euro, adding to bearish sentiment around EUR/USD.

Technical EUR/USD forecast: Key levels to watch

Source: TradingView.com

This week the pressure eased but the technical EUR/USD forecast still remains moderately bearish while the pair trends below key resistance around the 1.09 handle on a daily closing basis. At the time of writing, the EUR/USD was looking to go back below the 200-day moving average after testing resistance in the 1.0880 – 1.0910 area (shaded in yellow on chart)

If the downward momentum picks up again, the initial support level to keep an eye on is Monday’s high at 1.0826. The next potential downside target lies around 1.0775-1.0780, where a one-year-old bullish trend line comes into play. A break below this zone could see the pair moving towards 1.0700 or even lower, especially if Trump secures a win in the US presidential race next week.

-- Written by Fawad Razaqzada, Market Analyst

Follow Fawad on Twitter @Trader_F_R

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