Price action for EUR/USD has been driven partly by monetary policy expectations for the US Federal Reserve. In recent interest rate statements, the US central bank has repeatedly emphasized the importance of seeing a recovery in the labor market, as jobs indicators have been part of their consideration when it comes to adjusting policy.
With that, the non-farm payrolls release tends to influence long-term price action on most dollar pairs, including EUR/USD. A stronger than expected labor report has led to dollar buying, as it has put the Fed closer to achieving its unemployment rate target, while a weaker than expected NFP reading typically spurs a dollar selloff because it hints of a longer period of easy monetary policy.
Just recently though, Federal Reserve Chairperson Janet Yellen announced that the Fed would no longer be looking solely at the unemployment rate when it comes to figuring out when to start hiking interest rates. While she mentioned that other labor indicators will also be scrutinized, she also said that a rate hike might take place around six months after asset purchases end. However, she took a more dovish stance when she also pointed out that the labor market is still weak and that it could use more support from continued stimulus.
Jobs data should then have a strong impact on directing dollar direction in the long-term and recent data has reflected a bit of a pick-up. Recall that hiring conditions turned bleak a few months back when extreme weather conditions weighed on overall economic activity and it remains to be seen whether the US economy has been able to recover from this rut or not.
A strong non-farm payrolls figure would mark the second consecutive month of upbeat labor market gains, which would convince several market participants that the Fed is on track to tightening monetary policy ahead of several major central banks. Bear in mind that the issue of negative deposit rates has recently popped up from a few ECB officials, along with the suggestion of increasing LTRO operations.
The EUR/USD chart for this year so far shows how the pair usually starts a trend based on the jobs data released by the US economy. Notice that the pair is stalling at an area of interest lately, as traders sit tight ahead of the top-tier release which could dictate the dollar’s trend for the next few weeks or months.
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