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EUR/USD Tracks April Range Ahead of US Non-Farm Payrolls (NFP) Report

EUR/USD Rate Talking Points

EUR/USD pares the decline from earlier this week as attention turns to the US Non-Farm Payrolls (NFP) report, and the exchange rate appears to be reversing course ahead of the April low (1.0727) as it snaps the series of lower highs and lows from the previous week.

EUR/USD Tracks April Range Ahead of US Non-Farm Payrolls (NFP) Report

EUR/USD bounces back from the weekly low (1.0767) even though the ECB endorses a dovish forward guidance while presenting the 2019 Annual Report to the Committee on Economic and Monetary Affairs of the European Parliament, and updates to the US NFP report may fuel a larger rebound in the exchange rate as employment is expected to contract 22.0M in April.

Image of DailyFX economic calendar for US

At the same time, the jobless rate is anticipated to increase to 16% from 4.4% in March, and the economic shock from COVID-19 may push the Federal Reserve to further support to the US economy as Chairman Jerome Powell pledges to “use our tools to assure that the recovery, when it comes, will be as robust as possible.”

It remains to be seen if the NFP report will trigger a meaningful reaction as the ADP Employment report revealed a 20.236M contraction in private payrolls, and the updated figures may do little to alter the course for monetary policy as the FOMC remains “committed to using its full range of tools to support the U.S. economy in this challenging time.”

Recent remarks coming out of the ECB suggest the Governing Council will take a similar approach despite the ruling by the German Constitutional Court as Vice-President Luis de Guindos insists that the central bank is “more determined than ever to ensure supportive financial conditions across all sectors and countries to allow this unprecedented shock to be absorbed.

Mr. Guindos went onto say that the ECB stands readyto make further adjustments to our monetary policy measures should we see that the scale of the stimulus is falling short of what is needed,” and President Christine Lagarde and Co. may continue to endorse a dovish forward guidance at the next meeting on June 4 as the “growth scenarios produced by ECB staff suggest that euro area GDP could fall by between 5% and 12% this year, depending crucially on the duration of the containment measures.”

In turn, the ECB may continue to utilize its non-standard measures to support the monetary union as the central bank remains reluctant to push the main refinance rate, the benchmark for borrowing costs, into negative territory, and the Euro may face headwinds throughout 2020 as the Governing Council remains “fully prepared to increase the size of the PEPP (Pandemic Emergency Purchase Programme) and adjust its composition, by as much as necessary and for as long as needed.”

With that said, the Euro may underperform against its US counterpart in the current environment as the greenback benefits from the flight to safety, but EUR/USD appears to be reversing course ahead of the April low (1.0727) as the exchange rate snaps the series of lower highs and lows from the previous week.

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EUR/USD Rate Daily Chart

Image of EUR/USD rate daily chart

Source: Trading View

  • Keep in mind, the monthly opening range has been a key dynamic for EUR/USD in the fourth quarter of 2019 as the exchange rate carved a major low on October 1, with the high for November occurring during the first full week of the month, while the low for December happened on the first day of the month.
  • The opening range for 2020 showed a similar scenario as EUR/USD marked the high of the month on January 2, with the exchange rate carving the February high during the first trading day of the month.
  • However, the opening range for March was less relevant amid the pickup in volatility, with the pullback from the yearly high (1.1495) producing a break of the February low (1.0778) as the exchange rate slipped to a fresh 2020 low (1.0636).
  • Nevertheless, EUR/USD may trade within a more defined range in May as the advance from the April low (1.0727) failed to produce a test of the 1.1040 (61.8% expansion) region, which lines up with the April high (1.1039).
  • At the same time, EUR/USD appears to be reversing course ahead of the April low (1.0727) as the exchange rate snaps the series of lower highs and lows from the previous week, with the failed attempt to close below the 1.0780 (100% expansion) region bringing the Fibonacci overlap around 1.0830 (78.6% expansion) to 1.0860 (23.6% retracement) on the radar.
  • Next area of interest comes in around 1.0950 (100% expansion) to 1.0980 (78.6% retracement) followed by the 1.1040 (61.8% expansion) region.
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— Written by David Song, Currency Strategist

Follow me on Twitter at @DavidJSong