EUR/USD posts a fresh three-week high near 1.0830 in FridayÂ’s European session. The major currency pair strengthens as the EuroÂ’s outlook improves ahead of the second round of French elections, scheduled for Sunday, and sheer weakness in the US Dollar (USD).
The appeal for the Euro improves amid expectations that the Marine Le Pen-led far-right National Rally would fail to convert its victory of the first round into an absolute majority due to the tactical withdrawal of at least 200 candidates from SundayÂ’s legislative elections by a coalition of French President Emmanuel Macron-led entrist alliance and the left-wing.
On the monetary policy front, speculation for the European Central Bank (ECB) delivering subsequent rate cuts on July 18 has diminished as disinflation in the Eurozone appears to be stalling. The preliminary core Harmonized Index of Consumer Prices (HICP) that excludes volatile items grew steadily by 2.9% year-on-year in June.Â
Meanwhile, the Eurozone Retail Sales data has turned out mixed in May. Annually, Retail Sales expanded strongly by 0.3%, while economists expected spending at retail stores to have barely increased. On monthly, Retail Sales expanded by 0.1% after contracting 0.2% in April but missed expectations of 0.2% growth.
EUR/USD extends its winning spell for the seventh day on Friday. The major currency pair strengthens after stabilizing above the 20-day and 50-day Exponential Moving Averages (EMAs), which trade around 1.0750 and 1.0770, respectively. The overall trend of the shared currency pair has also strengthened as it has jumped above the 200-day EMA, which trades around 1.0800.
The Symmetrical Triangle formation on the daily timeframe exhibits a sharp volatility contraction, which indicates low volume and narrow ticks.
The 14-day Relative Strength Index (RSI) reaches 60.00. Should the bullish momentum be triggered if it breaks above this level?
Nonfarm Payrolls (NFP) are part of the US Bureau of Labor Statistics monthly jobs report. The Nonfarm Payrolls component specifically measures the change in the number of people employed in the US during the previous month, excluding the farming industry.
The Nonfarm Payrolls figure can influence the decisions of the Federal Reserve by providing a measure of how successfully the Fed is meeting its mandate of fostering full employment and 2% inflation. A relatively high NFP figure means more people are in employment, earning more money and therefore probably spending more. A relatively low Nonfarm PayrollsÂ’ result, on the either hand, could mean people are struggling to find work. The Fed will typically raise interest rates to combat high inflation triggered by low unemployment, and lower them to stimulate a stagnant labor market.
Nonfarm Payrolls generally have a positive correlation with the US Dollar. This means when payrollsÂ’ figures come out higher-than-expected the USD tends to rally and vice versa when they are lower. NFPs influence the US Dollar by virtue of their impact on inflation, monetary policy expectations and interest rates. A higher NFP usually means the Federal Reserve will be more tight in its monetary policy, supporting the USD.
Nonfarm Payrolls are generally negatively-correlated with the price of Gold. This means a higher-than-expected payrollsÂ’ figure will have a depressing effect on the Gold price and vice versa. Higher NFP generally has a positive effect on the value of the USD, and like most major commodities Gold is priced in US Dollars. If the USD gains in value, therefore, it requires less Dollars to buy an ounce of Gold. Also, higher interest rates (typically helped higher NFPs) also lessen the attractiveness of Gold as an investment compared to staying in cash, where the money will at least earn interest.
Nonfarm Payrolls is only one component within a bigger jobs report and it can be overshadowed by the other components. At times, when NFP come out higher-than-forecast, but the Average Weekly Earnings is lower than expected, the market has ignored the potentially inflationary effect of the headline result and interpreted the fall in earnings as deflationary. The Participation Rate and the Average Weekly Hours components can also influence the market reaction, but only in seldom events like the “Great Resignation” or the Global Financial Crisis.
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