Euro holds gains above 1.1600 despite robust US jobs data, traders eye ECB rate decision

The EUR/USD pair posts modest gains near 1.1615 during the early Asian session on Monday. However, the potential upside for the major pair might be limited amid a stronger-than-expected U.S. August Nonfarm Payrolls (NFP) report. US markets are closed on Monday for Labour Day.

US Nonfarm Payrolls (NFP) increased by 162,000 in August, compared to an upwardly revised rise of 21,000 in July, according to the US Bureau of Labor Statistics (BLS) on Friday. This figure came in stronger than expectations of 56,000. Additionally, the Unemployment Rate held steady at 4.1% in August.

Financial markets boosted rate hike bets at the US Federal Reserve's (Fed) September meeting, which might lift the US dollar (USD) against the Euro (EUR). Traders are now pricing in nearly 58.3% odds of a 25 basis points (bps) rate increase at the Fed's September meeting, up from about 50.2% before the data, the CME FedWatch tool showed.

“The American labor market is in good condition heading into the end of the year,” said Joe Brusuelas, chief economist at RSM. The data does lend support to the hawks at the Fed who are growing impatient with inflation, Brusuelas added.

The attention will shift to the European Central Bank (ECB) meeting on Thursday. The ECB is likely to raise interest rates at its upcoming policy meeting, which would bring its deposit rate by a quarter-point to 2.50%, according to a Reuters poll published on Thursday.

Nordeas strategists argue that the key issue for the Dollar now is not simply whether the Fed delivers the next move, but how it frames the policy path beyond it. They stress that “the more important question for the dollar is whether the Fed signals that September marks the start of a tightening cycle or merely a one-off adjustment,” with market reaction likely to hinge on whether policymakers clearly indicate an extended series of hikes or a more limited recalibration.

In the daily chart, EUR/USD holds a modest bullish bias as it trades above the 100-day moving average (MA) and above the Bollinger middle band, suggesting dip-buying interest just underneath spot. The Relative Strength Index (14) at 55.3 hovers in neutral-positive territory, hinting that upside momentum is constructive but not yet overstretched.

On the topside, initial resistance emerges at the Bollinger upper band around 1.1710, where recent rallies could face supply. On the downside, immediate support is seen at the Bollinger middle band near 1.1612, followed by the 100-day MA at 1.1565; a deeper pullback would expose the lower Bollinger band support close to 1.1515.

(The technical analysis of this story was written with the help of an AI tool. Know more.)

The Euro is the currency for the 20 European Union countries that belong to the Eurozone. It is the second most heavily traded currency in the world behind the US Dollar. In 2022, it accounted for 31% of all foreign exchange transactions, with an average daily turnover of over $2.2 trillion a day.

EUR/USD is the most heavily traded currency pair in the world, accounting for an estimated 30% off all transactions, followed by EUR/JPY (4%), EUR/GBP (3%) and EUR/AUD (2%).

The European Central Bank (ECB) in Frankfurt, Germany, is the reserve bank for the Eurozone. The ECB sets interest rates and manages monetary policy.

The ECB Governing Council makes monetary policy decisions at meetings held eight times a year. Decisions are made by heads of the Eurozone national banks and six permanent members, including the President of the ECB, Christine Lagarde.

Eurozone inflation data, measured by the Harmonized Index of Consumer Prices (HICP), is an important econometric for the Euro. If inflation rises more than expected, especially if above the ECBs 2% target, it obliges the ECB to raise interest rates to bring it back under control.

Relatively high interest rates compared to its counterparts will usually benefit the Euro, as it makes the region more attractive as a place for global investors to park their money.

Data releases gauge the health of the economy and can impact on the Euro. Indicators such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can all influence the direction of the single currency.

Economic data for the four largest economies in the euro area (Germany, France, Italy and Spain) are especially significant, as they account for 75% of the Eurozones economy.

Another significant data release for the Euro is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period.

If a country produces highly sought after exports then its currency will gain in value purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.