The EURUSD currency pair, which had been climbing toward multi-year highs above 1.1830, saw a sharp reversal on Wednesday as macroeconomic divergence between the US and Eurozone widened. Trading near 1.1770, the Euro is losing momentum, weighed down by an uptick in unemployment and dovish remarks from European Central Bank officials.
Conversely, the US Dollar Index (DXY) is regaining its footing after touching recent lows, buoyed by robust US labor market data and a composed yet cautious Jerome Powell, who showed little urgency to ease policy despite political pressure and global uncertainties.
Eurozone Labor Market Raises Concerns
Recent Eurozone data revealed an unwelcome rise in unemployment, from 6.2% to 6.3% in May, defying expectations of stability. This rise, though modest, signals fragility in the bloc’s recovery, especially at a time when ECB policymakers like Olli Rehn and Mario Centeno are warning about structurally low inflation and its implications on medium-term growth.
While German manufacturing activity showed mild improvement and inflation held near target, the overall employment picture weakened confidence in the Euro. This divergence between strong production data and soft labor numbers may complicate the ECB’s rate path.
ECB Dovishness Amplified by Lagarde & Others
At the ECB Forum in Sintra, speakers including President Christine Lagarde and policymakers underscored the need for vigilance regarding deflationary pressures. Their comments, reflecting a growing bias toward further monetary easing, have helped push the Euro lower.
Lagarde is set to speak again later Wednesday, and any dovish shift or discussion of rate cuts may reinforce the bearish momentum already dragging EURUSD lower.
US Dollar Finds Lifeline in Powell and Data
The US Dollar’s rebound has been powered by unexpectedly strong labor market indicators and Powell’s composed stance. On Tuesday, the JOLTS Job Openings report showed a jump to 7.769 million, beating forecasts of 7.3 million. This suggests that labor demand remains robust, even amid Fed policy uncertainty.
Meanwhile, the ISM Manufacturing PMI for June rose to 49.0, surpassing expectations. Importantly, the Production subindex returned to expansion at 50.3, a key milestone that may signal early signs of manufacturing recovery. However, the Employment sub-index deteriorated, underscoring the importance of upcoming labor data.
Powell, speaking at Sintra, rejected political pressure from President Trump and reiterated that the Fed will act only when needed. This “wait-and-learn” approach has calmed market fears of premature rate cuts, helping the Dollar stabilize.
Eyes Turn to US ADP and NFP Data
Markets are now focused on the ADP Employment Change report due later Wednesday, which is expected to show a 95K increase in June—a rebound from May’s dismal 37K reading. This data, along with Thursday’s pivotal Nonfarm Payrolls, will likely dictate short-term Fed rate expectations and shape Dollar momentum heading into Q3.
A stronger-than-expected ADP or NFP report would solidify the Fed’s hawkish stance, potentially dragging EURUSD further toward key support near 1.1720.
EURUSD Technical Outlook: Bearish Momentum Building
Technically, EURUSD is approaching critical levels, with the 1.1770 zone acting as near-term support. A break below could open the path to 1.1720 and 1.1675, particularly if the US ADP or NFP prints come in hot. Momentum indicators point to a shift in trend, with RSI falling below 50 and MACD showing fresh bearish crossovers.
If Powell’s tone remains firm and Eurozone data continues to underwhelm, the pair may struggle to regain upside traction in the near term.
Key Economic Calendar Events Ahead
Date Event Forecast Previous
- July 2 US ADP Employment Change (June) 95K 37K
- July 3 US Initial Jobless Claims 236K 233K
- July 4 US Independence Day (Markets Closed) – –
- July 5 US Nonfarm Payrolls (June) 190K 186K
- July 5 Eurozone Retail Sales (May) 0.2% -0.1%
Conclusion: EURUSD at a Turning Point as Dollar Recovers
The EURUSD pair’s retreat from recent highs underscores the fragility of the Euro’s momentum. While Powell’s hawkish neutrality and upbeat US labor data provide tailwinds for the Dollar, Eurozone uncertainty on jobs and inflation is weighing heavily on the shared currency.
With crucial labor market reports due in the US, traders should expect heightened volatility, especially as the Fed calibrates its next move. The Euro needs strong backing from Lagarde or macro improvements to reclaim its bullish path.
Disclaimer: This blog is for informational purposes only and does not constitute financial advice. Always conduct your own research and consult a professional advisor before making investment decisions.
[sc_fs_multi_faq headline-0=”h2″ question-0=”Why did the EURUSD fall today?” answer-0=”The pair declined due to weaker-than-expected Eurozone employment data, dovish ECB remarks, and stronger-than-forecast US labor data, which boosted the US Dollar.” image-0=”” headline-1=”h2″ question-1=”What did Powell say in Sintra?” answer-1=”Fed Chair Jerome Powell maintained a cautious stance, rejecting political interference and signaling no urgency to cut rates. He emphasized waiting for clearer inflation and labor data.” image-1=”” headline-2=”h2″ question-2=”What levels are key for EURUSD traders?” answer-2=”Support lies at 1.1770, with further downside toward 1.1720. Resistance remains at 1.1830. A break of either could set the tone for the next trend leg.” image-2=”” count=”3″ html=”true” css_class=””]
