EUR/USD likely to be underpinned on expectations Fed will cut aggressively
Aug 2 (Reuters) -EUR/USD rallied above its 55- and 200-DMAs Friday and tested resistance near 1.0900 as investors price in a more aggressive Fed rate cutting cycle after the U.S. July payroll report indicated slower job growth.
July NFP came in at 114k versus a 175k estimate and the June number was revised down to 179k from 206k. Unemployment jumped to 4.3% against an estimate for 4.1%. Average hourly earnings came in below estimates.
The signs of a softening jobs market may lead the Fed to cut more aggressively than the central bank has indicated.
U.S. yields US2YT=TWEB, US10YT=TWEB dropped sharply while December 2025 SOFR futures SRAZ25 struck a 14-month high.
The German-U.S. 2-year yield spread US2DE2=RR, which EUR/USD is correlated with, tightened to levels not seen since July 2023.
SOFR SRAH26 and Euribor FEIM6 futures indicate much tighter spreads between the dollar and euro once the Fed and ECB end cutting cycles.
Investors' expectations for the Fed to cut aggressively and tightening spreads should help to underpin EUR/USD.
Technical signals reinforce that view as they highlight the pair's upside potential. Daily and monthly RSIs are rising, and EUR/USD is holding above a slew of daily moving averages.
The down trend line off 2023's peak and July's high appear vulnerable. Should they break, 1.1050/1.1100 can come into focus.
For more click on FXBUZ
(Christopher Romano is a Reuters market analyst. The views expressed are his own)
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