The EUR/USD pair experiences a decline, settling at approximately 1.1215 during the early Asian trading session on Friday. Hawkish remarks from ECB policymakers could potentially mitigate the Euro’s declines. Traders prepare for the release of the US September jobs data on Friday, seeking new momentum. The EUR/USD pair experiences a decline, approaching 1.1215 in the early Asian session on Friday, influenced by a prevailing cautious sentiment. However, the potential downside for the pair may be constrained in light of the hawkish position adopted by the European Central Bank. Attention will be focused on the US jobs data for September, set to be released later on Friday. ECB Governing Council member Joachim Nagel stated on Tuesday that the central bank is likely to raise borrowing costs next month in response to the deteriorating inflation outlook. Meanwhile, ECB policymaker Klaas Knot indicated that the central bank will likely need to maintain a hawkish stance and remain cautious of inflation shocks. Economists anticipate a concluding adjustment in rates next month; however, market expectations suggest that tightening will persist beyond this point, extending into 2027.
Lower US Treasury yields may exert downward pressure on the Greenback and serve as a supportive factor for the major pair. The two-year yield, exhibiting heightened sensitivity to interest rate expectations, declined approximately 10 basis points (bps) overnight to 4.47%. Bonds shifted as Federal Reserve expectations adjusted, with Fed funds futures reducing the likelihood of a 25 bps rate hike in December to about 70% from over 70.9% on Thursday, per the CME FedWatch tool. Market participants will closely analyse Friday’s US jobs data to assess the trajectory of the Federal Reserve’s interest rate policy. Analysts anticipate that the Nonfarm Payrolls will indicate an increase of 65,000 jobs for September, with the Unemployment Rate expected to remain steady at 4.2% during this timeframe. “Recent data suggests improvement in the labor market, and we expect that to continue with this report,” said MUFG analysts. Analysts note that a relatively quiet data calendar still delivered an important signal on price dynamics, with the release of the Euro Area flash CPI print for October. They highlight that the reading “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%.”
In their view, this was accompanied by a sharp repricing in near-term inflation expectations, as “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%.” On the rates side, Deutsche Bank points out that the move in inflation swaps coincided with a strong rally in European sovereign bonds. They report 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%.” This compression also fed through to the core-periphery spread, with the bank noting that “that also pushed the Franco-German 10yr spread down by -11.8bps to 150bps, marking its tightest level in the last couple of weeks.” ECB President Lagarde’s speech scores 6.2/10 on FXS Speechtracker, modestly above the historic average of 5.6/10, pointing to a slightly more impactful and hawkish tone. Emphasis that it is “still necessary to apply tools to avoid inflation running away” and that shocks are hard to disentangle suggests the ECB remains biased toward keeping policy tight, even as uncertainty around supply and demand dynamics persists. Comments indicating that US tariffs are unlikely to be revisited swiftly and that US mid-term elections may influence trade only gradually highlight a prudent approach to external risks, with possible repercussions for the Euro through growth and trade mechanisms.
The reference to the energy shock and AI pulling in opposite directions underscores a complex backdrop in which the ECB is expected to remain vigilant, thereby reinforcing a mild upside bias for the Euro as markets incorporate a sustained commitment to combating inflation. In the daily chart, EUR/USD exhibits a bearish near-term tone as the spot remains constrained below the 100-day simple moving average. Price is positioned just below the upper Bollinger Band, indicating potential upward pressure, while it remains above the Bollinger middle band, which currently serves as initial support. The Relative Strength Index (14) at 46.7 remains beneath the midline, suggesting a lack of robust bullish momentum and supporting the notion of a recovery that continues to be limited by overhead supply. On the topside, immediate resistance is situated at the upper Bollinger Band around 1.1260, succeeded by a more significant barrier at the 100-day SMA near 1.1415. On the downside, initial support is identified at the Bollinger middle band at 1.1195, followed by a lower protective zone at the Bollinger lower band near 1.1130, where sellers may take a moment to reassess before pursuing further declines.
