EUR/USD: risk appetite falls, so does the pair

The dollar gained a few pips against the euro on Friday, following the release of the monthly federal employment report (NFP report), which was followed by a rally in 10-year Treasuries. However, the report does not show a stronger than expected increase in wage dynamics. But there is other evidence of a chronically high degree of tension in US private employment...

In detail, the private sector is said to have created nearly 515,000 jobs in the first month of the year, compared with 255,000 in December, and the unemployment rate, expected to rise very slightly to 3.5%, fell to 3.3% of the active population. This is enough to give reason to J Powell, in his warning this week. The moderation in wage growth is however welcomed with relief. This surge in job creation, coexisting with a very low unemployment rate, leaves room for doubt about a future acceleration in wage growth.

The Fed signalled its wariness of employment pressures at the end of last week's FOMC meeting by hinting at further rate hikes, following Wednesday's 25 bp Fed Funds hike. This "signals further hikes to counter the risks posed by the tight labour market. In fact, job vacancies rose to over 11 million in December, but layoff announcements jumped in January and wage moderation continues, even if the phenomenon is slow," says Jeanne Asseraf-Bitton, Head of Research and Strategy at BFT IM.

"On the other hand, despite the ECB and President Lagarde clearly reinforcing their hawkish tone at the press conference [on Thursday], the market reaction suggests that investors are sceptical of the Bank's guidance. Eurozone yields fell after the announcement: 10-year government bond yields fell by 20 basis points in Germany, 20 basis points in France and 33 basis points in Italy," ING strategists note.

In terms of statistics on Monday, there was little to get excited about, apart from the Sentix index of investor confidence in the Eurozone, which rose to -8.0 points, although still clearly in negative territory.

Right now, the pair is trading at $1.0718.

KEY CHART ELEMENTS
The bullish bias is not threatened at this stage. Simply, the spot is falling back, towards its long moving average, with no tangible sign of a buying entry point. Neutral opinion retained.

MEDIUM-TERM FORECAST
Given the key chart factors we have mentioned, our medium-term view on the EUR/USD is neutral.

We will maintain this neutral view as long as the EUR/USD is positioned between support at $1.0645 and resistance at $1.1190.