NFP Could Further Fuel EURUSD Rally

As markets adjust to the reality of Trump’s tariffs and changing uncertainties, US NFP data could provide some justification for the Fed to lower interest rates.

Bad News Presents an Opportunity

Gold prices continue to reach new heights as markets remain nervous about the potential impact of US President Donald Trump's tariff policies on the economy and prices. A slowing economy, which would maintain pressure on the Fed to ease while inflation remains elevated, creates an ideal scenario for the dollar to weaken and gold prices to continue surging. As a result, further euro strength could build on the back of a weaker dollar and the EU Commission's support measures in response to tariff announcements. However, now that the "Liberation Day" has passed, the market can shift its focus towards data that could underline whether the anticipated effects of the new policies are materialising.

The labour market in the US is expected to continue showing signs of cooling in March. Following the JOLTs report, which showed the lowest number of job openings since September, investors worry the US economy might stagnate and lead to a slower demand for workers. Additionally, this month's NFP is likely to be impacted by government job cuts. Trump implemented a hiring freeze upon taking office, and various departments under the direction of the Department of Homeland Security have reduced personnel. This effect was not reflected in the February NFP data and is therefore expected to exert downward pressure on the final total number in Friday's release.

Consensus Expectations

The consensus among analysts is that the March jobs report will see 80K additions, a large decline from the 151K in February and below the six-month average of 190K. This includes an anticipated reduction of 50K in government payrolls during the period. Meanwhile, the unemployment rate is projected to see a subtle increase to 4.2% from 4.1%, while average hourly earnings growth is forecast to continue outpacing inflation and remain at 4%.

Markets are on the lookout for signs of a loosening labour market, as this would provide the Fed with justification to resume its easing programme and support stock prices. Lower interest rates are also seen as beneficial for the euro. If the NFP data were too negative, the market could become more concerned about an economic slowdown, which could lead the euro even higher. However, a positive surprise poses a threat, as it could reassure traders that the economy remains strong, signalling higher interest rates. But given that employment data is a lagging indicator, the potential for an upside surprise may be somewhat muted and could fade relatively quickly, particularly if there are further announcements regarding the trade war, followed by stimulating counter-measures by the EU.

EURUSD Flag Breakout Eyes 1.12?

The measured move projection of the recent flag pattern that formed in EURUSD suggests a continuation towards 1.12, following the breakout above 1.0955. However, if prices fail to breach the psychological levels of 1.10 and 1.11 or lose the (now) support level, it could signal the end of the five-wave impulse, potentially leading to a larger pullback towards 1.0732 and eventually lower. Nevertheless, given the completed inverse head-and-shoulders pattern on the higher timeframe, the odds of continued upside remain favourable.

Source: SpreadEx / EURUSD

Key Takeaways

While the upcoming NFP data could provide justification for the Fed to ease and further fuel the euro rally, an upside surprise could keep the buck intact and limit the pair’s move past 1.10. However, the sustainability of the rally will also depend on tariff developments and how the EU implements potential countermeasures.