EUR/USD retreats toward 1.0900 ahead of US NFP

EUR/USD is retreating from two-month highs toward 1.0900 in the European session on Friday. The pair rallied on Thursday, bolstered by prospects of movement from the ECB and an easing US Dollar on the back of a dovish tone from Fed Chair Jerome Powell. US NFP coming up next. 

Technical Overview

1.0960 (Fibonacci 61.8% retracement of the latest downtrend) aligns as first resistance for EUR/USD ahead of 1.1000 (psychological level, static level) and 1.1035 (Fibonacci 78.6% retracement).

On the downside, first support could be seen at 1.0910-1.0900 (former resistance, Fibonacci 50% retracement, psychological level). A 4-hour close below this level could trigger another leg lower toward 1.0860 (50-period Simple Moving Average (SMA), Fibonacci 38.2% retracement) and 1.0820-1.0830 (100-period SMA, 200-period SMA).

Fundamental Overview

EUR/USD extended its rally and reached its highest level in seven weeks above 1.0950. The pair stays in a consolidation phase below 1.0950 as market focus shifts to February jobs report from the US.

The European Central Bank (ECB) left key rates unchanged following the March policy meeting, as expected. The revised projections showed a downward revision to inflation and growth forecasts for 2024.

In the post meeting press conference, ECB President Christine Lagarde acknowledged that they have started discussing the dialing-back of the restrictive policy stance. Lagarde, however, said that they want to be "sufficiently confident" about reaching the inflation goal and added that they would need more data until June meeting to assess the next policy step.

Although the Euro struggled to gather strength during the ECB event, the broad-based selling pressure surrounding the USD fuelled another leg higher in EUR/USD in the second half of the day.

The US Bureau of Labor Statistics will release labor market data for February later in the session. Nonfarm Payrolls (NFP) are forecast to rise by 200,000. The CME FedWatch Tool currently shows that markets are pricing in a more than 80% probability of a Federal Reserve policy pivot in June. In case the NFP reading disappoints by arriving below 150,000, the initial reaction could weigh on the USD and help EUR/USD edge higher. 

If NFP arrives close to 300,000 and surpasses the market forecast by a wide margin, the USD could gather strength ahead of the weekend and trigger a downward correction in EUR/USD. This data by itself might not be able to alter market pricing of the Fed rate outlook in a significant way but investors could see it as an opportunity book some profits following this week's bullish rally.