Euro retreats to near 1.1200 as traders look ahead to US jobs data

EUR/USD comes under pressure near 1.1215 during early Asian trading on Friday.
The Euro could find some support from hawkish comments by ECB policymakers.
Friday’s US September employment report is in focus as traders await a fresh catalyst.

Cautious sentiment weighs on EUR/USD in Friday’s early Asian trading, pulling the pair towards 1.1215. A hawkish European Central Bank (ECB), however, might contain further declines. Attention now turns to the US September employment figures due later on Friday.

With the inflation outlook deteriorating, ECB Governing Council member Joachim Nagel said on Tuesday that borrowing costs would probably be raised next month. Fellow ECB policymaker Klaas Knot said the central bank would likely need to maintain its hawkish approach and remain alert to inflation shocks. While economists anticipate a final interest rate move next month, markets expect tightening to extend beyond that and into 2027.

TMGM Analysis: Financial Market News, Economic Calendar & Market Insights

EUR/USD could receive support if declining US Treasury yields put pressure on the Greenback. Overnight, the two-year yield, which is particularly sensitive to interest rate expectations, dropped about 10 basis points (bps) to 4.47%.

Changing expectations for the Federal Reserve (Fed) were also evident in the bond market. According to the CME FedWatch tool, Fed funds futures lowered the implied probability of a 25 bps interest rate increase in December to around 70%, compared with more than 70.9% on Thursday.

To assess the Fed’s interest rate trajectory, traders will look to Friday’s US employment report for further guidance. September Nonfarm Payrolls (NFP) are expected by economists to increase by 65,000 jobs, with the Unemployment Rate forecast to remain at 4.2% for the same period.

Referring to the non-farm payrolls release, MUFG analysts said: "Recent data suggests improvement in the labor market, and we expect that to continue with this report,"

How did Euro inflation data drive swaps as Euro and US breakevens reached two-month lows?

Despite a relatively light data calendar, Deutsche Bank analysts see the October Euro Area flash CPI release as a significant signal on price trends. The reading, they note, "came in as expected by the consensus, with headline inflation up to a 3-year high of +4.0% in October, whilst core inflation remained at +2.5%." They link the release to a substantial adjustment in near-term inflation expectations, explaining that "that led to a huge decline in inflation expectations, with the Euro 1yr inflation swap (-25.9bps) down to a two-month low of 3.10%, whilst the 1yr US inflation swap (-24.9bps) hit a two-month low of 2.16%."

A sharp rally in European sovereign debt accompanied the adjustment in inflation swaps, according to Deutsche Bank. Describing the move in rates, the bank says that "yields on 10yr bunds (-5.8bps) fell to 3.27%, whilst 10yr OATs (-17.6bps) saw their biggest daily decline since April, falling to 4.77%." The narrowing also extended to the core-periphery spread. As the bank observes, "that also pushed the Franco-German 10yr spread down by -11.8bps to 150bps, marking its tightest level in the last couple of weeks."

Does Lagarde’s hawkish tone signal continued vigilance on inflation?

A slightly firmer, more hawkish message emerges from ECB President Lagarde’s speech, which registers 6.2/10 on FXS Speechtracker against a historical average of 5.6/10. Her emphasis that it is “still necessary to apply tools to avoid inflation running away”, alongside the difficulty of disentangling shocks, suggests a continued ECB preference for restrictive policy despite lingering uncertainty over supply and demand dynamics.

External risks also feature in her cautious assessment: US tariffs are unlikely to be reconsidered soon, while US mid-term voting may influence trade only over time. For the Euro, these risks could have implications through growth and trade. Her reference to the opposing effects of the energy shock and AI points to a complicated environment that is likely to keep the ECB watchful. As markets factor in a sustained commitment to tackling inflation, this reinforces a modest upward bias for the Euro.

Technical Analysis: Can EUR/USD Shake Off Its Bearish Bias Below the 100-day SMA?

Trading below the 100-day simple moving average (SMA) keeps EUR/USD’s near-term outlook bearish on the daily chart. The spot price is positioned just below the upper Bollinger Band, indicating pressure on the upside, but remains above the middle band, now the first line of support. At 46.7, the Relative Strength Index (14) is below its midpoint, signalling weak bullish momentum. Together, these indicators suggest that overhead selling continues to restrict the recovery.

Any upward move would first encounter resistance around 1.1260 at the upper Bollinger Band, before facing the more significant 100-day SMA barrier near 1.1415. If prices retreat, the middle Bollinger band at 1.1195 provides initial support. Below that lies a further protective area around 1.1130 at the lower Bollinger Band, where sellers could take a breather before seeking fresh lows.

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

Euro: Frequently Asked Questions

Which countries use the Euro, and how widely is it traded?

Used by the 20 European Union countries in the Eurozone, the Euro ranks second only to the US Dollar among the world’s most actively traded currencies. Its share of all foreign exchange transactions was 31% in 2022, when average daily turnover exceeded $2.2 trillion. An estimated 30% of all transactions involve EUR/USD, making it the world’s most actively traded currency pair. Next come EUR/JPY (4%), EUR/GBP (3%) and EUR/AUD (2%).

What role does the ECB play in the Euro’s performance?

Based in Frankfurt, Germany, the European Central Bank (ECB) serves as the Eurozone’s reserve bank, determining interest rates and overseeing monetary policy. Price stability is its central mandate, pursued by containing inflation or supporting growth. Changes in interest rates are its main policy instrument. The Euro generally gains from relatively high rates or expectations of rate increases, while the reverse usually weakens it. Monetary policy is decided by the ECB Governing Council at eight meetings each year. The decision-makers comprise the heads of Eurozone national banks and six permanent members, among them ECB President Christine Lagarde.

Why do inflation figures matter for the Euro?

Measured through the Harmonised Index of Consumer Prices (HICP), Eurozone inflation is a key economic indicator for the Euro. An above-forecast rise in inflation, particularly beyond the ECB’s 2% target, obliges the central bank to increase interest rates to regain control of price pressures. When the region’s interest rates are relatively high compared with those elsewhere, the Euro usually benefits because global investors find it more attractive to place their money there.

Which economic releases can move the Euro?

The Euro can respond to data releases because they reveal the condition of the economy. GDP, Manufacturing and Services PMIs, employment figures and consumer sentiment surveys are among the indicators that can shape the single currency’s direction. Economic strength supports the Euro by drawing in foreign investment and potentially encouraging the ECB to increase interest rates, which would directly strengthen the currency. Weak economic figures, by contrast, are likely to weigh on the Euro. Particular attention is paid to releases from Germany, France, Italy and Spain. These four largest euro area economies together represent 75% of the Eurozone’s economy.

Why is the Trade Balance important for the Euro?

The Trade Balance is another key release for the Euro, recording the difference between a country’s export earnings and its spending on imports during a specified period. Strong overseas demand for a country’s exports generates additional demand for its currency as foreign buyers seek to purchase those goods, thereby lifting the currency’s value. A positive net Trade Balance therefore supports a currency, while a negative balance has the opposite effect.