Euro Retreats as US Dollar Recovers Ahead of US NFP Data

• Euro pares early advance as US Dollar rebounds.
• Lower oil prices and US political headwinds fail to prevent the US Dollar from recouping its early losses.
• An anticipated rise in the Eurozone’s flash HICP has reinforced the argument for further ECB interest rate increases.

At around 1.1228, EUR/USD is little changed during Thursday’s European trading session, having pulled back from an intraday high of 1.1268. The retreat leaves the Euro (EUR) with almost none of its early gains against the US Dollar (USD). A recovery in the US Dollar accounts for the major currency pair’s reversal, as the US Dollar Index (DXY) rebounds into marginally positive territory at around 101.54.

Political turbulence in the United States (US) and a steep fall in oil prices nevertheless leave market experts questioning whether the US Dollar can sustain its recovery.

The sharp drop in oil prices is central to MUFG analysts’ assessment: the “weaker US dollar and lower US yields have been encouraged by the sharp decline in the price of oil which is helping to ease market concerns over upside inflation risks.” Brent, they observe, “has fallen by around USD10/barrel since the US mid-term elections results were announced,” bringing it back towards support at the “200-day moving average at around USD93.60/barrel.” In MUFG’s assessment, oil “had already been falling sharply at the start of this week and the mid-term election results have reinforced the sell-off.”

A separate concern identified by the bank is “another downside risk for the US dollar from the US mid-term election,” with the result potentially serving “to further undermine investor confidence in US AI-related investments in response to increased Democratic opposition to the ongoing AI build-out.”

Friday’s release of October US Nonfarm Payrolls (NFP) figures is the next economic focus for investors. The report is likely to shape expectations for Federal Reserve (Fed) interest rates.

Ahead of that release, traders remain confident of a 25 basis points (bps) interest rate increase at the Fed’s December policy meeting, taking rates to the 4.00%-4.25% range.

Meanwhile, a further pick-up in Eurozone inflationary pressures has bolstered expectations that the European Central Bank (ECB) will raise interest rates again in the near term.

Euro draws support as persistent inflation adds to ECB tightening pressure

Recent Eurozone figures continue to favour further monetary tightening, according to Commerzbank’s Antje Praefcke, who observes that “at the same time, euro area inflation rose to 4% year-on-year in October, while the core rate remained unchanged at 2.5%.” Her assessment is that “although these figures were in line with analysts’ expectations, with an inflation target of 2% and a deposit rate of 2.50%, they clearly make the case for further ECB rate hikes.” She also argues that “as a consequence of persistently high energy prices, an increasing number of companies is likely to pass on higher costs over time,” strengthening the rationale for further ECB tightening and lending support to the Euro even as concerns over growth persist.

EUR/USD Holds Above Key Moving Average in Technical Analysis

Trading at 1.1228 on the daily chart, EUR/USD remains marginally above its 20-day exponential moving average (EMA) of 1.1217. This points to tentative stabilisation following the recent fall. With no nearby overhead reference levels, however, the wider outlook remains neutral rather than firmly bullish. A recovery in the Relative Strength Index (RSI), currently at 48, towards its midpoint indicates that downward momentum is easing, although there is no clear acceleration to the upside yet.

The 20-day EMA at 1.1217 provides the first downside support. A sustained breach would bring the risk of a steeper retreat towards earlier chart lows back into focus. Provided spot holds above this moving average and the RSI stays close to the 50 region, consolidation could continue. Buyers would then be seeking to establish a base while waiting for a clearer upside reference level to test.

(The technical analysis of this story was written with the help of an AI tool. Know more.)