The dollar strengthens its position while EUR/USD retreats to 1.1650 after US employment optimism

The weakening of the Euro continues its downward trend amid stronger employment indicators in the US. - The Dollar Index reaches technical highs surpassing the 200-day moving average, pointing to a breakout toward 99.00 if the bullish momentum persists. - Price deflators in the Eurozone reinforce the consensus on the end of the European Central Bank’s monetary easing cycle.

US labor market boosts appetite for the US dollar

The EUR/USD pair records its fourth consecutive session of losses on Thursday, driven by surprise upside in employment data. Traders have strengthened their positions in the Dollar, anticipating that the ECB has already completed its monetary easing cycle, especially after the contraction observed in European producer prices in December. At Thursday’s close, EUR/USD trades at 1.1652, showing a 0.19% retracement.

In the US, the labor market continues to send positive signals. Challenge’s December layoffs report showed that corporations reduced staff less than in November. Simultaneously, new unemployment claims surprised the market, with figures below expectations, confirming the gradual strength of employment.

This favorable context has galvanized the Dollar Index (DXY), which tracks the performance of the currency against a basket of international reference. The index rose 0.19% to 98.91, breaking through the critical technical level of the 200-day simple moving average at 98.87. A close above this threshold could trigger an upward move toward 99.00.

Authorities’ comments are minimized by market dynamics

The dovish statements from the Fed Board member were widely ignored by market participants, who have already priced in two rate cuts according to analysis from financial terminal sources. Meanwhile, the US Treasury Secretary urged Federal Reserve officials not to delay rate cuts to support economic growth.

Eurozone faces pressure as multiple indicators deteriorate

Although Europe presented a robust economic agenda, the data painted a mixed picture. Inflation continued its downward trajectory, and consumer confidence improved compared to previous months. However, the Economic Sentiment Indicator showed a deterioration in December, mainly affected by weakness in the services, retail, and consumer behavior sectors.

The Eurozone Producer Price Index showed a monthly acceleration to 0.5% from 0.1%, exceeding the expected 0.2%. Year-over-year, producer prices fell to -1.7%, recording a less deep contraction than the -1.9% anticipated. In Germany, factory orders for November surprised positively, rising 5.6% month-over-month compared to 1.6% in October, contradicting market forecasts.

Currency pair outlook this week

The Euro experienced the most significant depreciation against the US Dollar, losing 0.56% so far this week. However, it showed relative strength against the Canadian Dollar, gaining 0.34%. Other pairs like EUR/GBP and EUR/JPY registered moderate movements of 0.39% and 0.48%, respectively.

Technical analysis: EUR/USD under pressure as observers watch key levels

The technical setup of EUR/USD has weakened significantly, with the pair positioned to close below Wednesday’s low at 1.1672. The Relative Strength Index indicates a neutral to bearish trend, although sellers still need to break the structural support at the 200-day moving average at 1.1561 to confirm a more extended downward move.

On the defensive side, the first support level is at the 50-day simple moving average around 1.1640, followed by the main support at 200 days at 1.1561. To revive bullish scenarios, buyers would need to recover the 1.1700 level, with the 20-day moving average acting as secondary resistance at 1.1733.

What to expect in the coming days

The Eurozone economic calendar will include retail sales figures, ECB authorities’ comments, and German industrial production data. In the US, the schedule focuses on the monthly non-farm payroll report, unemployment rate, consumer confidence indices, and real estate statistics. These data are likely to continue shaping the EUR/USD dynamics in the coming days.