The euro gained ground against the U.S. dollar on Friday, pushing EUR/USD above 1.1550 after weaker-than-expected July Nonfarm Payrolls (NFP) and ISM Manufacturing PMI data reignited concerns about a slowing U.S. economy.
The U.S. Labor Department reported just 90,000 new jobs added in July—well below the 110,000 forecast—while the unemployment rate ticked up to 4.2% from 4.1%. The ISM index also showed continued contraction in manufacturing, further pressuring the dollar.
The U.S. Dollar Index fell sharply in response, retreating from recent highs as traders reassessed the path of Federal Reserve policy. With expectations now adjusting toward a potential rate cut, the euro capitalized on dollar weakness to extend its gains.
Despite technical signals showing overbought conditions—the Relative Strength Index (RSI) on the 4-hour chart remains below 30—fundamental drivers are overriding near-term chart resistance.
Fed Cut Odds Rise After Dismal Payrolls
The latest data significantly altered market expectations for the Fed’s next move. According to the CME FedWatch Tool, markets are now pricing in a 40% chance of a 25-basis-point rate cut at the Fed’s September meeting.
Several factors are feeding this speculation:
- Subdued labor market performance
- Persistent weakness in U.S. manufacturing
- Inflation pressures easing modestly
- Trade policy uncertainties, including new 35% tariffs on Canadian imports
Market reaction was swift. Risk sentiment improved in Europe, and bond yields fell as investors flocked to safety and recalibrated rate forecasts. If upcoming U.S. data remains soft, expectations for a dovish Fed pivot could strengthen further.
Key EUR/USD Levels to Watch
The currency pair’s latest move above 1.1550 represents a break through multiple resistance levels. Still, traders are watching closely for confirmation and potential reversals.
Support Levels:
- 1.1400 – Static support
- 1.1360 – 61.8% Fibonacci retracement
- 1.1300 – Psychological level
Resistance Levels:
- 1.1500 – Round number barrier
- 1.1540 – 38.2% Fibonacci retracement
- 1.1600 – Next psychological ceiling
If EUR/USD sustains momentum above 1.1550, it could challenge the 1.1600 level in the coming sessions, especially if U.S. data continues to disappoint or the Fed shifts tone.
For now, all eyes are on upcoming U.S. inflation and consumer sentiment reports, which will help shape expectations heading into the Fed’s next policy decision.