EUR/USD: What do the non-Farm January payments indicate?

[Ben Graham]

Official labor market data from the US came in better than expected, providing (temporary) support to the American currency. Almost all components of the report were in the green, defying the pessimistic forecasts of most analysts. The market reaction was immediate: the dollar index surged, and the EUR/USD pair approached the support level of 1.1830, which corresponds to the Kijun-sen line on the D1 timeframe. However, sellers of the pair were unable to break through this price barrier.

We will discuss the reasons for this price dynamic, but first, let's look at the figures.

According to the released data, US unemployment fell to 4.3% in January, while most analysts had expected this indicator to remain at the December level of 4.4%. The number of jobs added in the non-farm sector increased by 130,000. The growth rate in January was nearly double the forecast (+70,000) and nearly three times the December level (48,000). This represents the strongest result since May of last year. In the private sector, employment rose by 172,000 (against a forecast of +68,000), amid weak ADP data showing only a 22,000 increase.

The wage indicator also came in positive. Average hourly earnings grew by 3.7% year-over-year last month (the same as in December), while most experts forecasted a decrease to 3.6%. The labor force participation rate increased to 62.5%, after a slight decrease in December to 62.4%.

January's Non-Farm Payrolls served as a "lifeline" for the American currency, which was starting to sink under the weight of disappointing fundamental factors. For instance, last week saw three labor market reports—ADP, JOLTS, and Unemployment Claims—come out in the red zone. This week's retail sales data also disappointed, showing zero growth in December.

The data alleviated the bleak fundamental backdrop, allowing the dollar to partially regain lost ground. Conversely, sellers of EUR/USD brought the pair back to the 18 figure, while earlier in the morning buyers tested the resistance at 1.1930 (the upper boundary of the Kumo cloud on the H4 chart).

Despite this seemingly positive picture for the greenback, EUR/USD bears were unable to break through even the intermediate support level of 1.1830. Why?

As the saying goes, "the devil is in the details."

First, the BLS (Bureau of Labor Statistics) significantly revised last year's job creation data. The total number of jobs for 2025 was reduced to 181,000 from 584,000. The average monthly job growth last year was only 15,000—the slowest pace of employment growth since the coronavirus pandemic.

Secondly, the structure of the January report is concerning. Job growth has been concentrated in healthcare and social assistance, while key private-market sectors (including financial services, transportation, and manufacturing) remain stagnant or are experiencing downward dynamics. The federal sector lost about 34,000 jobs, indicating an uneven recovery.

Even in sectors with job growth (healthcare, social services, education), the increase is largely attributed to demographic pressure: the share of elderly people is growing, which increases demand for medical and social services. Consequently, job growth in these sectors is not an indicator of broad economic recovery or increased business activity in the economy.

In other words, despite the "green" appearance of the headline figures, the US labor market remains vulnerable to economic fluctuations. It exhibits structural weaknesses and limited depth of employment recovery. Moreover, the substantial downward revision of last year's figures (a 400,000 decrease in the total number is no joke).

This is precisely why traders have reacted so cautiously to the release, even though January's Non-Farm Payrolls weakened "dovish" expectations regarding the Fed's future actions. Market participants are now almost certain that the central bank will keep the interest rate unchanged at upcoming meetings (March, April). However, even before the NFP release, the probability of a rate cut this spring did not exceed 30%. This means that, for the most part, nothing has changed—at least in the context of the spring meetings.

The probability of a rate cut in June, however, remains high—over 60% (according to CME FedWatch data). Before the Non-Farm Payrolls were published, this probability was estimated at 75%.

What does all this indicate? That short positions on the EUR/USD pair remain risky, even after the "green" Non-Farm Payrolls report. The pair is likely to remain within the range of 1.1830–1.1930 (the lower/upper boundaries of the Kumo cloud on the H4 chart) until the publication of the US CPI on Friday. The inflation growth report will tip the scales either way: either the pair will stabilize above the target of 1.1930, opening the path to the 20 figure, or the price will drop to the 18 figure low with prospects of further declines to the support level of 1.1770 (the Kijun-sen line on the W1 timeframe).

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