EUR/USD recovered to about 1.1260 on Friday, up 0.16% after sliding to 1.1221, as the US Dollar weakened following soft US labour data. Nonfarm Payrolls rose 29K in September versus expectations of 90K, while prior months were revised down: August to 133K from 162K and July to a -10K fall from a 21K rise, a combined 60K downgrade. The Unemployment Rate ticked up to 4.2%, participation improved to 61.8% from 61.6%, and Average Hourly Earnings slowed to 3% YoY versus 3.2%. The US Dollar Index fell 0.23% to around 101.80.
Rate expectations shifted as well. The CME FedWatch tool put the probability of an October hike at 17%, down from 24% before the data and 64% a week earlier, while December pricing held at about 62%. In the Eurozone, HICP inflation accelerated to 3.8% YoY from 3.2%, with core at 2.5% versus 2.4%, keeping focus on the ECB. Technically, EUR/USD was near 1.1251, below the 100- and 200-period SMAs at 1.1319 and 1.1360; resistance sits at 1.1270 and 1.1312, with support at 1.1215 and 1.1200.
Dollar Weakness and Immediate EUR/USD Strategies
We believe derivative traders should prepare for prolonged weakness in the US Dollar following the dismal September payroll addition of just 29,000. With July and August employment revised down by a combined 60,000, the cooling labor market signals that the Federal Reserve will likely pause rate hikes this month. We suggest buying short-term Euro call options or utilizing bullish spot strategies above 1.1250 to capture the immediate upward momentum.
However, we must remain cautious as the Euro faces its own domestic challenges, including elevated oil prices and Eurozone inflation rising to 3.8% in September. Technically, EUR/USD faces heavy resistance near its 100-period and 200-period moving averages at 1.1319 and 1.1360. Therefore, we recommend placing protective stop-loss orders near the 1.1200 structural floor to mitigate risk.
Historical Patterns and Diversified USD Bearish Trades
Historically, when the US Dollar Index drops below key levels like 101.80 after severe jobs misses, it often tests major psychological support floors near 100.00. During similar historical labor market slowdowns, the greenback has experienced consecutive weeks of selling pressure. We can leverage this trend by executing bearish directional strategies on the dollar across various currency pairs.
For traders looking for cleaner trends, we advise looking beyond the Euro to other major currencies like the Japanese Yen or Australian Dollar. Trading USD against these currencies through generic derivative contracts can bypass the Eurozone’s specific fiscal and inflationary struggles. This diversified approach allows us to exploit broad US Dollar vulnerability without being restricted by the heavy technical caps on EUR/USD.
