US Dollar rebound trims Euro’s early gains as markets await US NFP data

• Euro pares its initial advance as the US Dollar regains ground.
• Despite political uncertainty in the US and softer oil prices, the US Dollar reverses its earlier decline.
• The prospect of a rise in the Eurozone’s flash HICP has added weight to the case for further ECB rate increases.

Renewed US Dollar (USD) strength leaves the Euro (EUR) with almost none of its earlier gains during Thursday’s European session. Having pulled back from the day’s peak of 1.1268, EUR/USD trades broadly unchanged near 1.1228. Behind the pair’s retreat is a recovery in the US Dollar, with the US Dollar Index (DXY) reversing its losses to edge into positive territory around 101.54.

The durability of the US Dollar’s rebound remains in doubt among market experts, however, given political turmoil in the United States (US) and the steep fall in oil prices.

According to MUFG analysts, 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’s price, they observe, “has fallen by around USD10/barrel since the US mid-term elections results were announced,” moving back towards support at the “200-day moving average at around USD93.60/barrel.” On the timing of the decline, MUFG says oil “had already been falling sharply at the start of this week and the mid-term election results have reinforced the sell-off.”

A further concern identified by the bank is “another downside risk for the US dollar from the US mid-term election,” with the result potentially set “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) is the next economic data point investors are awaiting. The figures are likely to shape expectations for Federal Reserve (Fed) interest rates.

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

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

Can stubborn inflation and renewed ECB pressure keep the Euro supported?

Further monetary tightening remains the focus of the policy debate following the latest Eurozone figures, according to Commerzbank’s Antje Praefcke. She notes 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%.” Assessing the policy implications, she says 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.” Praefcke 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,” adding to the case for further ECB action and providing support to the Euro even as growth concerns persist.

EUR/USD Technical Analysis: Can Support Hold?

Tentative signs of stabilisation are emerging after EUR/USD’s recent decline, with the daily chart showing the pair at 1.1228, marginally above its 20-day exponential moving average (EMA) of 1.1217. Even so, the lack of nearby reference levels overhead leaves the broader outlook neutral rather than firmly bullish. At 48, the Relative Strength Index (RSI) is moving back towards its midline, indicating that downward momentum is easing without yet signalling a clear acceleration to the upside.

The 20-day EMA at 1.1217 provides the first downside support. A sustained move below it would revive the risk of a larger retreat towards earlier lows on the chart. Consolidation could continue if spot holds this moving average and the RSI stays close to the 50 region, as buyers try 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.)