Explore how recent developments shape EUR/USD and GBP/USD trends in the dynamic foreign exchange landscape.
The U.S. Dollar Index (DXY) is in the spotlight as investors closely monitor the latest developments in jobs data and Federal Open Market Committee (FOMC) minutes, anticipating their impact on the EUR/USD and GBP/USD currency pairs.
Key Economic Reports
This week brings a flurry of significant reports, including the Job Openings and Labor Turnover Survey (JOLTs), the Automatic Data Processing (ADP) report for December, and the Non-Farm Payrolls (NFP) report scheduled for release later this week. Analysts are particularly interested in assessing how dovish Federal Reserve Chair Powell was during the last FOMC meeting, as this could influence market sentiments.
Rate Cut Expectations Adjusted
Maintaining its gains from Tuesday, the U.S. dollar has scaled back expectations of aggressive rate cuts. Previously, CME Fed Fund probabilities indicated an expectation of 175 basis points in rate cuts for 2023, with the first move anticipated in March. The Federal Reserve has now reduced this estimate to 150 basis points. The dovish tone set in late December by Fed Chair Powell has influenced this adjustment, and today’s release of the FOMC meeting minutes might provide further clarity on the market’s interpretation of Powell’s remarks.
EUR/USD and GBP/USD: Impact of Latest Developments
Upcoming Jobs Reports
Today’s session marks the commencement of three crucial U.S. jobs reports. The November JOLTS job openings release at 15:00 U.K. time may show a further decline in job openings, tightening labor market conditions. Thursday will see the release of the December ADP report at 13:15 U.K. time, followed by the latest U.S. NFP report on Friday at 13:30 U.K. time.
Market Reaction and Technical Analysis
Tightening rate expectations on Tuesday led to a surge in U.S. bond yields, boosting the U.S. dollar index (DXY). Although the DXY remains bearish overall, a short consolidation period around current levels is not out of the question.
The recent strength of the U.S. dollar has interrupted the multi-month rally of the GBP/USD pair. After reaching a five-month high of 1.2828 on December 28th, the pair is now targeting 1.2600. A decisive break below the 38.2% Fibonacci retracement level at 1.2628 may lead to a test of 1.2600 before encountering the 200- and 50-day simple moving averages at 1.2532 and 1.2517, respectively.
Retail Trader Sentiment
Data from I.G. retail traders indicates that 57.98% are net-long, with a long-to-short ratio of 1.38 to 1. The increase in net-long positions by 32.60% from yesterday and 30.90% from last week suggests a bearish outlook for GBP/USD prices, according to the contrarian view typically taken towards crowd sentiment.
EUR/USD Uptrend Maintained
EUR/USD has experienced a decline of two significant figures since its late December high print of 1.1193. However, the pair remains in an uptrend for now, with the first level of support observed at the 23.6% Fibonacci retracement of 1.08645. Further support is found near the 50- and 200-day simple moving averages at 1.0849 and 1.0845, respectively.
As the market awaits further economic data and FOMC minutes, investors remain vigilant for potential shifts in the currency landscape, keeping a close eye on developments in the U.S. Dollar Index and its impact on the EUR/USD and GBP/USD pairs.