EUR/USD Awaits Payroll Data at 1.1650 Amid Dollar Recovery

Market Holds Its Breath Before the Jobs Report

The EUR/USD pair is caught in a holding pattern near 1.1650 as Friday’s Asian trading session unfolds, with participants collectively pausing ahead of the headline Nonfarm Payrolls release. After absorbing five consecutive days of losses, the currency duo now faces a critical juncture where labor market data will likely determine the next directional impulse.

Caution dominates trading floors because December’s NFP figures—forecast to reveal 60,000 new jobs compared to November’s 64,000—carry outsized implications for Federal Reserve policy expectations. This slowdown in job creation could reshape rate cut probabilities if actual figures miss estimates substantially.

The Dollar’s Momentum Builds on Labor Market Clues

Contributing to EUR/USD’s downward pressure is the US Dollar’s continued strength following Thursday’s jobless claims data. Initial claims ticked up to 208,000 for the week ending January 3, coming in slightly better than the anticipated 210,000 but above the prior week’s revised 200,000 level. This seemingly modest move masks a concerning trend: continuing jobless claims surged to 1.914 million from 1.858 million, signaling that more workers are extending their unemployment benefit duration—a potential harbinger of softening labor demand ahead.

Eurozone Economy Shows Mixed Signals

Meanwhile, the Eurozone presents a puzzle of conflicting indicators. The European Commission’s Business Climate Index improved marginally to -0.56 in December from -0.66, suggesting a tentative stabilization in corporate sentiment. Consumer Confidence simultaneously rebounded to -13.1 from -14.6, hinting that households feel somewhat less pessimistic. Yet the Economic Sentiment Indicator contradicted this optimism by edging lower to 96.7 from 97.1.

On the price front, Eurozone Producer Price Index surprised to the upside with a 0.5% month-over-month increase in November, accelerating from October’s 0.1% and exceeding the 0.2% consensus forecast. However, year-over-year producer prices declined 1.7%, extending a fourth straight month of annual contraction—a reflection of subdued demand rather than competitive pricing dynamics.

The jobless rate did improve, falling to 6.3% in November from 6.4%, providing some positive context for EUR/USD bulls.

ECB Signals Rates Will Remain Anchored

The European Central Bank’s messaging reinforces expectations for policy stability. ECB Vice President Luis de Guindos affirmed on Thursday that prevailing interest rates represent the “appropriate” level, while noting that inflation has now reached target, albeit amidst significant uncertainty.

Critically, analysis from BBH FX reveals that the ECB’s consumer survey data points to unshaken inflation expectations. Respondents anticipate price growth of 2.8%, 2.5%, and 2.2% over one, three, and five-year horizons respectively—all unchanged from prior surveys and aligned with the central bank’s 2% medium-term target. This stability in expectations gives the ECB considerable scope to keep its benchmark rate at 2.00% without risking a rise in inflation psychology, removing any urgency for near-term adjustments.

The Road Ahead for EUR/USD

With the ECB seemingly comfortable holding its ground and US labor dynamics showing early signs of softening, EUR/USD remains vulnerable to additional downside if Friday’s payroll print disappoints. Traders will scrutinize not just headline numbers but wage growth, participation rates, and revisions to prior months—all components that shape Federal Reserve deliberations.