EUR/USD continued to be pressured on Monday – extending the US dollar rebound that has been in place since early last week – ahead of major economic data and events coming out of the US in the week ahead.
EUR/USD’s sharp breakdown for the past week has pared, by more than half, its recent rise during most of March, when the dollar had been pulling back substantially.
With the dollar currently in rebound mode, this week’s upcoming economic releases will likely have a strong impact on whether the dollar recovery continues.
In the US, the ISM manufacturing PMI data for March was released on Monday morning. Though the 57.2 result was slightly lower than the previous month’s 57.7, it was in-line with expectations and still represents strong expansion in US manufacturing. Additionally, the employment component of the manufacturing data came out at a very solid 58.9, showing significantly faster growth than the previous month’s 54.2. Though this is just one employment indicator of several, it bodes well for Friday’s US jobs report.
Another critical US release this week is the ISM non-manufacturing (services) PMI for March, expected to come out on Wednesday at 57.1.
Also on Wednesday will be a release of the minutes from March’s FOMC meeting, in which interest rates were raised by a quarter-point but the outlook for further rate hikes remained dovishly unchanged. Any hints in the minutes of greater hawkishness than previously perceived could prompt a further surge for the dollar.
Perhaps the most potentially market-moving event this week will be Friday’s jobs data, which will contain the critical non-farm payrolls (NFP) report. Current expectations are for around 175,000 jobs added in March, after February’s stellar 235,000 outcome. Prior to this Friday’s official jobs report, Wednesday will bring the ADP private employment data, which can often change expectations for the NFP as was the case last month. In the event of another solid or better-than-expected jobs report, the Fed could be pressured even more to accelerate the pace of policy tightening.
On the euro side, the European Central Bank gave somewhat of a jolt to the markets last week when it indicated that its dovish stance and easy monetary policy were far from over. Also potentially weighing on the euro is the looming French presidential election, the first round of which will be held in late April. The primary fear for European markets and the euro is that anti-EU nationalist Marine Le Pen has continued to be a strong contender for the presidency. In the event of her victory, Le Pen’s aggressive stance against the European Union could ultimately spark the potential beginning of the end for both the EU and the euro.
In the face of such pressures on the euro, along with a continued recovery for the dollar on consistently solid economic data and an increasingly hawkish-looking Fed, EUR/USD could extend its breakdown of the past week. As it currently stands, EUR/USD has dropped back down to its key 50-day moving average. With additional downside momentum stemming from further euro pressure and dollar recovery, the next major downside target is at the key 1.0500 support level.