EUR/USD Analysis: Bullish Pressure Increases After NFP Release

The EUR/USD pair initially reacted to the NFP release with a 0.8% upward move, adding to the more than 4% appreciation seen over the last five trading sessions. The current bullish pressure remains strong due to uncertainty arising from global tensions, European Central Bank (ECB) decisions, and today's U.S. employment data.

Factors Supporting Confidence in the Euro

One of the main factors supporting the euro has been the increase in defense and infrastructure spending by European leaders in response to growing global instability. In this regard, the newly appointed German Chancellor Friedrich Merz has announced an ambitious fiscal stimulus package aimed at revitalizing the European economy. The plan is expected to allocate approximately €500 billion to infrastructure investments, along with a significant increase in military spending.

Additionally, growing tensions between Ukraine and the United States have led the European Union to take a more active role in seeking regional stability. European leaders have emphasized the need to reach a peace agreement and are considering the use of over $200 billion in frozen Russian assets to support Ukraine’s economic recovery. These initiatives have strengthened investor confidence in European markets, positioning the euro as a safe-haven alternative amid global geopolitical and economic uncertainty.

If Europe continues to lead efforts to stabilize the region, confidence in the euro is likely to remain firm in the short term, which could further support the EUR/USD bullish momentum.

Impact of NFP and Monetary Policy

In its latest decision, the European Central Bank (ECB) cut interest rates to 2.65% from 2.9%. However, the ECB has indicated that it may continue lowering rates to boost the European economy, particularly in response to potential U.S. trade tariffs. Despite this extended period of monetary easing, the euro has not lost strength in the short term.

Meanwhile, recent U.S. employment data has shown signs of weakness. The official NFP report was expected to show 160,000 new jobs, but the actual figure came in lower at 151,000, indicating a deterioration in the U.S. labor market. This slowdown has shifted expectations for the Federal Reserve’s (Fed) monetary policy.

According to the CME FedWatch Tool, there is a 97% probability that the Fed will keep rates within the 4.25% - 4.5% range at its March 19 meeting. However, for the May 7 meeting, the probability of maintaining rates at current levels has dropped to 57.3%, while the likelihood of a rate cut to 4.00% - 4.25% has increased to 41.5%.

Source: CME Group

Source: CME Group

This new dovish outlook for Fed policy is the first since December, when the last rate cut brought levels down to 4.5%. With a weaker labor market, concerns about inflation may begin to fade, reducing the need to maintain high interest rates for an extended period.

As a result, the market has quickly reacted in favor of the euro. Despite rate cuts in Europe, uncertainty in the U.S. has weakened confidence in the dollar. The possibility of a more flexible monetary policy from the Fed has also impacted demand for the dollar, as lower interest rates make U.S. Treasury bonds less attractive.

This has helped the EUR/USD maintain its bullish momentum, as investors now see the euro as a more appealing currency in contrast to a weaker U.S. dollar.

EUR/USD Technical Outlook

Source: StoneX, Tradingview

• Trend Accelerates: Since January 13, the EUR/USD pair has broken through key levels, establishing a stronger bullish trend. Additionally, the 50-period moving average has begun to react, now approaching the 100-period moving average, suggesting a possible bullish trend consolidation in the short term.

  However, the pair's sharp rally has driven EUR/USD up to 1.0781, a level not seen since November 2024. This rapid appreciation may reflect an anxious market, which could lead to short-term pullbacks.

   

• RSI (Relative Strength Index): The RSI remains in an uptrend but has now entered overbought territory above 70. This signals a potential market imbalance, which could lead to price corrections in upcoming sessions.

   

• MACD (Moving Average Convergence Divergence): The histogram remains above zero, reinforcing bullish pressure. However, if the histogram surpasses its January highs, it could indicate overbought conditions, increasing the likelihood of a short-term pullback.

Key Levels:

1.09179 – Key Resistance: A major resistance level from November, considered the most significant barrier for the bullish trend. A breakout above this level could reinforce buying momentum.

1.07690 – Near-Term Support: A neutral level from October, which could act as a potential retracement zone for minor corrections.

1.05927 – Critical Support: A key level where previous consolidations occurred. If the price falls to this zone, the bullish momentum could weaken, leading to a sideways trading range.

Written by Julian Pineda, CFA – Market Analyst