Euro pares early gains as US Dollar recovers ahead of US NFP data

• US Dollar rebound erases the Euro’s initial advance.
• Despite political pressures in the US and falling oil prices, the US Dollar recoups its earlier losses.
• A projected rise in the Eurozone’s flash HICP has reinforced the argument for further ECB interest rate increases.

EUR/USD is broadly flat at around 1.1228. Having pulled back from the session high of 1.1268, the Euro (EUR) has relinquished almost all its early gains against the US Dollar (USD) during Thursday’s European trading session. A recovery in the US Dollar has driven the pair’s retreat. The US Dollar Index (DXY) has reversed its losses to trade slightly higher at around 101.54.

The durability of that US Dollar rebound remains in doubt among market experts, however, given political turbulence in the United States (US) and a steep fall in oil prices.

A sharp oil-price decline is central to MUFG analysts’ assessment. They say the “weaker US dollar and lower US yields have been encouraged by the sharp decline in the price of oil which is helping to ease market concerns over upside inflation risks.” Brent, they observe, “has fallen by around USD10/barrel since the US mid-term elections results were announced,” moving back towards support at the “200-day moving average at around USD93.60/barrel.” In MUFG’s assessment, oil “had already been falling sharply at the start of this week and the mid-term election results have reinforced the sell-off.”

The election outcome presents a separate concern. MUFG identifies “another downside risk for the US dollar from the US mid-term election,” citing the possibility that the result could “to further undermine investor confidence in US AI-related investments in response to increased Democratic opposition to the ongoing AI build-out.”

Friday’s release of October US Nonfarm Payrolls (NFP) is the next economic focus for investors. The figures are likely to shape expectations for Federal Reserve (Fed) interest rates.

A 25 basis points (bps) Fed rate increase at the December policy meeting remains the confident expectation among traders. Such a move would lift the rate range to 4.00%-4.25%.

For the Euro, a further pick-up in Eurozone inflation has reinforced expectations that the European Central Bank (ECB) will raise interest rates again in the near term.

Persistent inflation supports Euro as ECB faces fresh tightening pressure

Further tightening remains the focus of the policy debate after the latest Eurozone figures, according to Commerzbank’s Antje Praefcke. She notes that “at the same time, euro area inflation rose to 4% year-on-year in October, while the core rate remained unchanged at 2.5%.” On the policy implications, she says that “although these figures were in line with analysts’ expectations, with an inflation target of 2% and a deposit rate of 2.50%, they clearly make the case for further ECB rate hikes.” Praefcke also argues that “as a consequence of persistently high energy prices, an increasing number of companies is likely to pass on higher costs over time,” strengthening the rationale for further ECB tightening. This helps support the Euro even as concerns about growth persist.

1.1217 EMA Support: EUR/USD Technical Outlook

At 1.1228 on the daily chart, EUR/USD sits marginally above its 20-day exponential moving average (EMA) of 1.1217. That positioning points to tentative stabilisation following the recent fall. With no nearby reference levels overhead, however, the broader bias remains neutral rather than firmly bullish. A Relative Strength Index (RSI) reading of 48 shows the indicator moving back towards its midline. Downward momentum appears to be easing, but a clear acceleration to the upside has yet to emerge.

The 20-day EMA at 1.1217 provides the first downside support. A sustained breach would revive the risk of a larger retreat towards previous chart lows. Consolidation could persist while the spot rate holds above this moving average and the RSI stays around the 50 region. Buyers would then be seeking to establish a base as they wait for a clearer upside reference level to test.

(The technical analysis of this story was written with the help of an AI tool. Know more.)