- EUR/USD created bullish candle on Thursday.
- Investors have trimmed ECB rate cut bets.
- The shared currency could rise sharply if the US jobs data prints below estimates.
With investors paring back bets for an ECB rate cut, the stage looks set for EUR/USD to rally on the back of a weaker-than-expected US jobs data.
The European Central Bank (ECB) on Thursday refrained from hinting at an interest rate cut and also pushed back the timing of the lift off. The central bank also opened the door to buying more bonds or cut rates if required.
Even so, money markets, trimmed their bets for an ECB rate cut. The money market now sees a slim chance of cut in the deposit rate before July 2020, compared with March 2020 priced in ahead of ECB’s rate decision, according to Bloomberg.
The drop in rate cut bets could bode well for the shared currency – more so, as the short-term technical profile is looking bullish.
To start with, the pair bounced up from the former resistance-turned-support of the upper edge of the descending triangle post-ECB, reinforcing the bullish view put forward by the triangle breakout witnessed on Monday.
Further, the pair ended up creating a bullish outside day or engulfing candle on the daily chart. As a result, EUR/USD appears best positioned among other currency pairs to rally on weaker-than-expected US data.
The non-farm payrolls, scheduled for release at 12:30 GMT, is expected to show the pace of jobs growth slowed to 185K in May from April’s figure of 263K. The average hourly earnings growth, however, is forecasted to rise to 0.3% from 0.2%. Meanwhile, the jobless rate is expected to remain unchanged at 3.6%.
A big miss on payrolls and wage growth data would further cement expectations of Fed rate cuts and could yield a broad-based US Dollar sell-off. It is worth noting that the Fed funds futures are currently pricing three rate cuts for 2019.
Investors, however, would scale back their expectations of Fed rate cuts if the payrolls and wage growth data blows past expectations. In that case, EUR/USD will likely revisit 1.12.
A close below 1.12 would neutralize the immediate bullish view. On the other hand, a break above 1.1309 (Wednesday’s high) would further strengthen the short-term bullish case. As of writing, the pair is trading at 1.1270.
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