It's a crucial week for the US Dollar, with market participants shifting their attention to the upcoming US Non-Farm Payrolls data.

Market Fundamentals Overview

US Dollar (USD):

Last week, the US Dollar benefited from the unwinding of excessive short positions and generally robust economic data from the United States. However, this upward momentum lost steam following a disappointing US Job Openings release, which, combined with a downturn in equities, weighed on sentiment. Attention has now shifted to the upcoming Non-Farm Payrolls (NFP) report on Wednesday, a key event that could significantly influence the dollar’s direction.

Currently, markets are anticipating 54 basis points of rate cuts from the Federal Reserve this year. Should the data surprise to the upside, there is a considerable risk of a more hawkish market adjustment, potentially fueling a broad-based rally in the greenback.

Conversely, if the NFP report is weaker than expected, it could reinforce expectations for further Fed easing, possibly prompting traders to bring forward their rate cut projections. Some Fed officials have expressed doubts about the stability of the labor market, so disappointing data may put renewed downward pressure on the US Dollar as dovish bets increase.

Euro (EUR):

Turning to the euro, the European Central Bank left interest rates unchanged last week, as anticipated, resulting in little market reaction. The spotlight was on President Lagarde’s remarks, especially after the euro surpassed the 1.20 mark against the US Dollar.

Lagarde acknowledged the euro’s appreciation since last March and reiterated that the ECB does not target exchange rates. However, she noted that a stronger euro could help lower inflation more than previously expected.

ECB officials have shown less concern about the euro’s value after it retreated to 1.18. The 1.20 level remains a key threshold, but a sustained move above it would likely need to be accompanied by softer inflation data to prompt discussions of rate cuts.

EURUSD Technical Analysis – Daily Chart

On the daily timeframe, EURUSD pulled back after climbing above 1.20, as short dollar positions became overextended and ECB officials verbally intervened. Should the pair approach the 1.20 level again, sellers are likely to emerge, with risk managed above the recent highs, aiming for a move down toward 1.1575. Buyers, meanwhile, will be watching for a breakout above resistance to pursue new highs in the cycle.

EURUSD Technical Analysis – 4-Hour Chart

On the 4-hour chart, a significant resistance zone is evident near 1.19. If price revisits this area, sellers may enter the market, managing risk above resistance and targeting a decline toward the 1.1760 support, with a potential for a breakout. On the flip side, a move above resistance could encourage buyers to push for a fresh cycle high.

EURUSD Technical Analysis – 1-Hour Chart

On the hourly chart, a minor ascending trendline is supporting bullish momentum. Buyers are likely to use this trendline as a foundation to drive prices higher, while sellers will be looking for a break below it to trigger a move back toward the 1.1760 support. The red line on the chart marks today’s average daily range.

Key Events Ahead

• Tomorrow: US December Retail Sales and Employment Cost Index
• Wednesday: US Non-Farm Payrolls (NFP) report
• Thursday: US Jobless Claims
• Friday: Eurozone Flash Q4 GDP and US Consumer Price Index (CPI)