US Dollar kick-started the year on a strong footing, appreciating against most major rivals

Highlights:

• EUR/USD whipsawed in hectic Friday action following Eurozone inflation and US jobs data.
• European inflation continues to hamper the ECB, while US jobs data beat the Street.
• The EUR/USD is closing out the week near the 1.0940 level.

The US labor market’s improvement put a halt to speculations about the Federal Reserve’s intention to reduce interest rates. As long as the country’s economy continues to grow and avoid a recession, the central bank may not act soon.

Prior to the March meeting of the Federal Reserve, markets were pricing in a 90 percent chance of a rate cut. However, the NFP report has sent those odds down to around 60 percent.

Despite the improvement in the labor market, the December Purchasing Managers’ Index from the Institute for Supply Management (ISM) showed a decline. The index fell to 50.6 from 52.7 in November, which was its lowest level in seven months.

The data revisions that have been released regarding the NFP report have been quite negative. For instance, the November NFP was revised down to 173K from 199K, while the October print was lowered to 105K from 150K. Next week, investors will be looking forward to the release of European Retail Sales and the manufacturing and consumer sentiment readings.

Data on the US will be relatively thin until next week, with the CPI (consumer price index) due on Thursday. Economists expect the headline index to tick up to 3.2% from 3.1%.

On Friday, the euro fell to its lowest level in over three weeks against the dollar after European inflation accelerated in December. The HICP for the 12 months ended December was 2.9%, which was higher than the previous month’s 2.4%.

Although the markets expected a print of around 3.0%, rising inflation curbed the possibility of the ECB cutting interest rates. The euro rallied after US nonfarm payrolls data showed that the country added over 200,000 jobs in December.

For the year ended December, the US’ average hourly earnings increased by 4.1%, exceeding the consensus estimate of 3.9% and marking a slight increase from the previous year’s rate.

EUR/USD Daily Chart

The EUR/USD managed to break higher on Friday, but it remains capped around the 200-hour SMA at around 1.1000. As the back half of the week’s trading approaches, the pair is consolidating between the 50-hour SMA and the 200-hour SMA around 1.0940.

The early decline from 1.1040 has seen the EUR/USD weaken, and it is currently trading flat as the near-term technical barrier of 1.0900 looms large. Daily candlesticks suggest that the pair is consolidating above a bullish cross of its 50-day and 200-day moving averages, and buyers are likely to step in to capitalize on the near-term technical convergence.