EUR/USD. The Dollar is Again in Disfavor: The Pair Remains Within the 17 Figure

[Ben Graham]

The EUR/USD pair was unable to break through the 1.1800 resistance level (the upper line of the Bollinger Bands indicator on the D1 timeframe) last week, after which sellers took the initiative, driving the price to the 17 figure base. However, they also could not enter the area of the 16 figure, let alone surpass the support level of 1.1690 (the upper boundary of the Kumo cloud on the same timeframe). Friday's trading closed at 1.1704.

Overall, the pair declined last week on fairly shaky grounds. The US Dollar Index strengthened its position for three days (Wednesday to Friday), but objective factors did not support this dynamic. A key role here was played by subjective assessments of market participants, most of whom viewed the situation as "half full" rather than "empty." For instance, despite the US unemployment rate rising to 4.6% in November, its highest level since September 2021, traders focused on employment figures that were slightly stronger than expected (+64,000 instead of +50,000).

Although this component of the report was in the "green zone," there are no grounds for optimism. Firstly, a 64,000 job increase already indicates a cooling of the US labor market. For example, in November 2024, 212,000 jobs were created in the United States (and 307,000 in December).

Secondly, existing BLS (Bureau of Labor Statistics) calculation models may overstate the job growth figures. According to Federal Reserve Chairman Jerome Powell, official data may be "too optimistic." He estimates that the exaggeration could be quite significant – approximately 50,000 to 60,000 jobs monthly. This is due to traditional counting methods not fully accounting for digitalization and automation, as well as structural changes in the labor market, particularly the dynamics of non-standard/part-time employment. For example, the BLS does not always correctly account for freelance work, temporary contracts, and employment on platforms such as Uber or Upwork. Considering all these discrepancies, the real picture may be much gloomier – according to some estimates, the United States is actually losing 15,000 to 20,000 jobs monthly since the spring of this year.

Thus, the November NFP report is not an ally of the greenback, as it contains no prerequisites for its growth.

The same can be said for the November CPI report, which was also published last week. It reflected a slowdown in the overall consumer price index to 2.7% year-on-year (after rising to 3.0% in October) and a slowdown in the core index to 2.6% (after rising to 3.0% in the previous month).

Despite the "tolerant" market reaction and discussions about technical factors (resulting from the consequences of the shutdown), the structure of the November CPI contains signs of a sustainable slowdown in inflation, especially in core and demand-sensitive components. For example, the services sector—especially housing, rent, and medical services—is highly correlated with domestic demand and wages. A slowdown in price growth here indicates that demand for goods and services within the economy is cooling. It is worth returning to the NFP report, which reflected a slowdown in the "wage" indicator. Hourly earnings showed very weak growth – only 0.1% month-on-month (the slowest growth rate since July 2024) and 3.5% year-on-year (the lowest value of the indicator since May 2021).

All this suggests that the market misinterpreted key releases from the past week in favor of the US dollar. At the moment, the labor market and inflation seemed to have strengthened the position of "moderate hawks" advocating a wait-and-see approach. However, in reality, the NFP and CPI reports have strengthened the position of "doves" advocating further monetary policy easing.

For this reason, the EUR/USD bears were unable to enter the 16-figure area, despite the downward price movement last week. For the same reason, the EUR/USD buyers have taken the initiative today amid overall dollar weakness. The information background for the greenback remains negative – conflicting CPI/NFP reports have failed to "redraw" the fundamental picture for the US currency. Therefore, long positions on downward price dips remain relevant.

From a technical perspective, the pair is positioned between the middle and upper lines of the Bollinger Bands indicator on the daily chart, and above all lines of the Ichimoku indicator, which has formed a bullish "Parade of Lines" signal. Corrective pullbacks should be used to open long positions with targets of 1.1750 (upper line of the Bollinger Bands on H4) and 1.1800 (upper line of the Bollinger Bands on D1).

The material has been provided by InstaForex Company - www.instaforex.com