EUR/USD Rebound Hindered by Strong US Dollar and Labor Data

EUR/USD experienced a rebound during the late American session on Thursday, but its attempt to stabilize above 1.0900 was unsuccessful. The upcoming release of June labor market data from the US holds the potential to trigger significant movement in the pair leading into the weekend.

The US Dollar demonstrated strength against its counterparts, causing EUR/USD to fall below 1.0840 in response to positive data releases. The monthly ADP report revealed an impressive increase of 497,000 in private sector payrolls for June, while the ISM Services PMI improved from 50.3 to 53.9, indicating a pickup in growth momentum within the service sector's business activity.

Market expectations for nonfarm payrolls (NFP) in the US predict a rise of 225,000 in June, with the unemployment rate projected to decrease slightly from 3.7% to 3.6%.

Following Thursday's data, the probability of the Federal Reserve (Fed) implementing a total of 50 basis points in policy rate hikes by December surpassed 40%, according to the CME Group FedWatch Tool.

If the NFP reading surpasses 300,000 or higher, it is likely to fuel hawkish Fed sentiments, which could continue to dominate the markets. Conversely, a disappointing print below 200,000 could lead investors to reassess their outlook on the Fed's rate trajectory and weigh on the strength of the US Dollar.

Market participants will also closely monitor the wage inflation component. Average Hourly Earnings are expected to rise by 4.2% on a yearly basis, slightly weaker than the 4.3% growth recorded in May. Stronger-than-forecast wage inflation could help the US Dollar maintain its position even if the NFP data surprises to the downside.

Trade closed: target reached:

In June, the Nonfarm Payrolls (NFP) in the United States increased by 209,000, falling short of the market's expectation of 225,000. Additionally, the previous month's gain of 339,000 was revised downward to 306,000. Nevertheless, the unemployment rate slightly decreased to 3.6%. Despite the lower-than-expected job creation, these figures still indicate a robust labor market.

As a result of the disappointing job data, the market's anticipation of a rate hike at the next Federal Open Market Committee (FOMC) meeting remains, but expectations for a second hike before the year's end have diminished. This adjustment in expectations has constrained US yields and subsequently led to a 0.75% decline in the value of the US Dollar, marking its worst performance in a week. US stocks are experiencing mixed trading, while commodity prices are on the rise.

The EUR/USD currency pair is currently hovering above 1.0960, reaching its highest level since June 27 and exhibiting a sustained bullish momentum. It has managed to retain its weekly gains and remains positioned above the 20-week Simple Moving Average. If the pair remains above the 1.0960 level, attention will likely shift towards the 1.1000 area, followed by the June high at 1.1012. Conversely, a drop below 1.0930 would weaken the short-term outlook for the Euro.

Looking ahead to the next week, there are no significant reports scheduled from the Eurozone. However, the most noteworthy economic indicators will be released by the United States, including the Consumer Price Index (CPI) on Wednesday and the Producer Price Index (PPI) on Thursday. These inflation figures will be crucial in shaping expectations leading up to the FOMC meeting on July 25-26.