EUR/USD: A reassessed Fed Funds trajectory

Currency traders are digesting yesterday's release of the Non-Farm Payrolls report, which pleasantly surprised many by contradicting recent signs of a deteriorating job market. Average hourly wages rose by 0.3% (0.2% according to the consensus forecast), and the unemployment rate fell to 4.2% of the labour force, compared to expectations of a stable rate of 4.5%. Finally, private sector job creation reached 129,000, double the median analyst forecast.

"While today's release is undeniably good news, it's worth remembering that January data is often affected by seasonal effects, which can inflate the results. This year's release could be more subject to statistical variations due to the introduction by the BLS of an updated version of the so-called 'Birth-Death' model. These two factors somewhat temper the enthusiasm generated by today's figures," says Jeff Schulze, head of economic and market strategy at ClearBridge Investments (a subsidiary of Franklin Templeton).

This report also translates, inevitably, into a decrease in expectations for key interest rates from the US Federal Reserve (Fed).

"Beyond these technical effects, today's figures are favorable for risk assets as they confirm the strength of the labor market, which is likely to support continued consumer spending. Investors have postponed the first anticipated rate cut in Fed Funds futures from June to July, with today's release suggesting a reduced need for further monetary easing to support employment. Nevertheless, the negative impact of higher rates is more than offset by the improved growth outlook, and equity index futures are rising modestly," added the asset management expert.

Released in the afternoon, weekly jobless claims in the United States were close to expectations, at 228,000 new claims, a slight decrease.

Right now, the EUR/USD is trading at $1.1873.

KEY TECHNICAL ELEMENTS
The triangle consolidation pattern of January 28th and 29th has been invalidated, and our long positions on the EUR/USD are suspended. Our outlook is neutral pending further clear technical signals.

MEDIUM-TERM FORECAST
Based on the key technical factors mentioned above, our medium-term outlook for the EUR/USD is neutral.

We will maintain this neutral stance as long as the EUR/USD remains between the support level at 1.1830 USD and the resistance level at 1.2085 USD.