The EUR/USD pair started the trading week fairly calmly. During the Asian session on Monday, sellers attempted to push for a downward correction, but this attempt failed. EUR/USD bears managed to reach only the level of 1.0724, where they lost their initiative.
It's also worth noting another significant point: the absence of a downward gap. This indicates that Friday's price increase wasn't driven by emotional factors, as often happens after important releases (especially after the release of Nonfarm Payrolls, which is published on the last trading day of the week). Over the weekend, traders "digested" the information and agreed with their initial conclusions that the dollar had lost a key fundamental advantage. Hawkish expectations have weakened, while dovish expectations have grown.
By the way, the cooling of the U.S. labor market is evidenced not only by the October Nonfarm Payrolls. Last week, it became known that the number of Americans filing for unemployment benefits for the first time reached 217,000, the highest increase in the indicator in the last seven weeks. It was also revealed that the cost of labor decreased by 0.8% in the third quarter (with a forecast of a 0.7% increase).
In essence, the October Nonfarm Payrolls served as the "final puzzle piece," shattering the hopes of dollar bulls for a tightening of the Federal Reserve's monetary policy in the next month (the probability of a rate hike in December is currently 9%). Traders also harbor no illusions about the January prospects, with a probability of 14%.
In other words, the market is now virtually certain that the Federal Reserve has completed the current cycle of monetary policy tightening. Such confidence has been in the air for quite some time, but Friday's release effectively settled the matter. The market's reaction was swift: the U.S. dollar index hit a 6-week low, and key Wall Street indices demonstrated significant growth last week.
Geopolitical factors also added pressure to the dollar. Interest in risk increased after it became clear that Iran and Hezbollah are trying to avoid an open conflict with Israel. In particular, in his recent television appearance (the first since the start of hostilities), the leader of the Lebanese group did not declare that his forces would fully engage in the conflict. The significance of this statement is hard to overstate, as it essentially answers the question of whether the conflict between Israel and Hamas will escalate into a regional war. Events in the Middle East are developing rapidly, but at the moment, there are no signs of such a scenario unfolding. The absence of an escalation of war eased concerns about disruptions in oil supplies from the region. Risk aversion decreased, and interest in risk increased.
Euro, in turn, received support from German data today. It became known that the total volume of industrial orders in Germany increased by 0.2% in September on a monthly basis, while most experts had forecasted a decrease of 1.3% for this indicator. In addition, some PMIs have been revised upwards (referring to the final assessment for October). In particular, the business activity index in the German services sector rose to 48.2. It was also announced today that the investor confidence index in the eurozone increased to -18.6 (in the previous month, this indicator was at -21.9 points). The expectations index also rose to -10.0 (from the previous value of -16.8), the highest level since February of this year.
However, the main driver of EUR/USD growth remains the weakening U.S. dollar, which is losing value across the entire market, in all pairs of the so-called "major group." Against the backdrop of reduced hawkish expectations, the yield on Treasuries has also decreased, stabilizing at the 4.58% level (after reaching almost a 5% target). The EUR/USD pair, in turn, has stabilized around the mid-7 figure.
The further price movement vector will depend on the rhetoric of Federal Reserve members. The economic calendar for this week is not filled with important reports, but it is expected that 10 representatives of the Federal Reserve will speak, including Fed Chairman Jerome Powell. If they entertain the possibility of a rate cut (as a rate hike is no longer under consideration) in their rhetoric, the dollar will come under additional pressure, as at the moment, the probability of a monetary policy easing in the spring of next year (specifically, at the May meeting) stands at 45%.
It's worth noting that following the November meeting, Powell stated that the Federal Reserve "is not considering a rate cut at this time," but he also indicated that further adjustments to monetary policy will depend on incoming data. Interestingly, the Fed chairman voiced this position just two days before the release of disappointing Nonfarm Payrolls. How the central bank representatives will adjust their rhetoric "post facto" remains an open question.
From a technical perspective, the EUR/USD pair on the daily chart is within the Kumo cloud, above the upper line of the Bollinger Bands indicator, and above the Tenkan-sen and Kijun-sen lines. The nearest (and so far the primary) target for the upward movement is the level of 1.0810 (the upper boundary of the Kumo cloud on D1). The current fundamental background supports the development of an upward trend, at least in the context of a possible test of the 1.08 level.