Market Analysis: EUR/USD nears 1.09 as US NFP undershoots

EUR/USD reclaimed the 1.08 level on Friday despite some volatility earlier in the week. The pair responded positively to the European Central Bank’s (ECB) decision to cut rates by another 25 basis points (bps), as President Christine Lagarde reassured markets that the central bank remains flexible regarding future rate adjustments. Given the extent of policy easing seen over the past nine months, market participants are now pricing in a 50/50 chance of a pause at the ECB’s next meeting in April, reinforcing demand for the euro.

However, later in the day, news emerged that the Trump administration had decided to delay the implementation of tariffs on Mexico by another month following productive discussions with Mexican leaders. This announcement led to a recalibration in the US dollar, briefly pulling EUR/USD back to 1.0790 and erasing earlier gains. Nevertheless, bullish momentum in the euro remains intact, largely fuelled by a significant surge in European yields. This rise, spearheaded by German bond yields, follows expectations that Germany’s new coalition government will agree to reform historic debt policy rules to enable increased national defence spending. This policy shift has triggered a surge in risk appetite for European assets.

10-year Bund yields daily chart

Past performance is not a reliable indicator of future results.

US Jobs Data and Its Impact on EUR/USD

The US labor market data released on Friday came in slightly softer than anticipated. Non-farm payrolls increased by 151k, falling short of the expected 159k, while average hourly earnings grew by 4% year-over-year, compared to a forecast of 4.1%. Additionally, the unemployment rate unexpectedly rose to 4.1% from 4.0%. While not necessarily weak, the data offers some reassurance that the US economy is not overheating. Although these figures are unlikely to influence the Federal Reserve’s decision to keep interest rates unchanged later this month, they have contributed to further weakness in the US dollar.

This shift has bolstered EUR/USD’s bullish sentiment, with the pair climbing beyond 1.0880 and testing the 1.09 threshold for the first time since November. However, technical indicators suggest that the rally may face short-term resistance. The Relative Strength Index (RSI) has entered overbought territory, which could limit the potential for further upside in the near term. Nonetheless, bullish momentum may persist before a possible technical correction occurs.

EUR/USD daily chart

Past performance is not a reliable indicator of future results.

Eurozone GDP Provides Additional Support

The final reading of the Eurozone’s Q4 GDP, released earlier on Friday, also contributed to the euro’s strength. The report showed an upward revision to 1.2% from the initial estimate of 0.9%, further supporting the euro’s recent gains.

Conclusion

As EUR/USD continues its upward trajectory, traders should remain cautious of potential resistance levels and technical corrections. While fundamental factors support the euro, short-term pullbacks are possible due to technical overextension. Market participants will closely watch upcoming economic data and central bank communications to gauge the pair’s next move.