Euro slips towards 1.1200 ahead of US jobs data

• Around 1.1215, EUR/USD trades lower in early Asian dealing on Friday.
• The Euro’s decline could be contained by hawkish comments from ECB policymakers.
• Friday’s US employment figures for September are in focus as traders await a fresh catalyst.

With September’s US employment figures due later on Friday, EUR/USD has slipped towards 1.1215 in early Asian trading as caution weighs on sentiment. A hawkish European Central Bank (ECB), however, could help contain further losses in the pair.

A deteriorating inflation outlook will probably prompt the central bank to raise borrowing costs next month, ECB Governing Council member Joachim Nagel said on Tuesday. Fellow ECB policymaker Klaas Knot also suggested that a hawkish approach would likely remain necessary, alongside vigilance over inflation shocks. While economists anticipate a final rate increase next month, markets are pricing in further tightening beyond then, extending into 2027.

An overnight decline of about 10 basis points (bps) took the two-year US Treasury yield to 4.47%. This maturity is particularly sensitive to interest rate expectations. Lower Treasury yields could put pressure on the US Dollar, providing support for the major currency pair.

Shifting expectations for the Federal Reserve (Fed) were also evident in the bond market. According to the CME FedWatch tool, Fed funds futures reduced the implied probability of a 25 bps rate increase in December to around 70%, from more than 70.9% on Thursday.

For a clearer indication of the Fed’s likely rate trajectory, traders will scrutinise Friday’s US employment report. Economists forecast that Nonfarm Payrolls (NFP) will record an increase of 65,000 jobs in September, with the Unemployment Rate holding steady at 4.2% over the same period.

Referring to the non-farm payrolls release, MUFG analysts said: "Recent data suggests improvement in the labor market, and we expect that to continue with this report,"

Euro inflation figures anchor swaps as Euro and US breakevens fall to two-month lows

October’s flash Euro Area CPI release provided a notable indication of price trends despite an otherwise light economic calendar, according to analysts at Deutsche Bank. The bank notes that the figure "came in as expected by the consensus, with headline inflation up to a 3-year high of +4.0% in October, whilst core inflation remained at +2.5%." The analysts link the release to a substantial adjustment in short-term inflation expectations, saying "that led to a huge decline in inflation expectations, with the Euro 1yr inflation swap (-25.9bps) down to a two-month low of 3.10%, whilst the 1yr US inflation swap (-24.9bps) hit a two-month low of 2.16%."

European government bonds rallied strongly alongside the adjustment in inflation swaps, Deutsche Bank observes. According to the bank, "yields on 10yr bunds (-5.8bps) fell to 3.27%, whilst 10yr OATs (-17.6bps) saw their biggest daily decline since April, falling to 4.77%." The resulting narrowing extended to the core-periphery spread: the analysts add that "that also pushed the Franco-German 10yr spread down by -11.8bps to 150bps, marking its tightest level in the last couple of weeks."

Lagarde adopts a hawkish tone with inflation risks in view

A score of 6.2/10 on FXS Speechtracker puts ECB President Lagarde’s speech slightly above the historical average of 5.6/10, signalling a somewhat more consequential and hawkish tone. Her emphasis that it is “still necessary to apply tools to avoid inflation running away”, together with the difficulty of disentangling shocks, points to a continued ECB preference for tight policy. Uncertainty over supply and demand dynamics nevertheless remains.

A guarded approach to external risks is also apparent in comments that US tariffs are unlikely to be reconsidered soon and that US mid-term votes may influence trade only gradually. Such risks could affect the Euro through growth and trade. References to the opposing effects of the energy shock and AI illustrate a complicated backdrop that is likely to keep the ECB alert. As markets factor in a lasting commitment to tackling inflation, this supports a modest upward bias for the Euro.

Technical Analysis: EUR/USD stays under pressure beneath the 100-day SMA

Trading below the 100-day simple moving average (SMA) keeps EUR/USD’s near-term outlook bearish on the daily chart. Although the price remains above the middle Bollinger Band, now the first support level, its position just beneath the upper band suggests pressure on the upside. At 46.7, the Relative Strength Index (14) remains below its midpoint. This indicates limited bullish momentum and suggests that overhead supply continues to restrain the recovery.

The upper Bollinger Band, around 1.1260, provides the nearest resistance, with a more substantial obstacle at the 100-day SMA near 1.1415. Initial downside support lies at the middle Bollinger Band at 1.1195. Below that, the lower band around 1.1130 forms a further defensive area, where sellers could pause before seeking new lows.

(The technical analysis of this story was written with the help of an AI tool. Know more.)