Euro Exchange Rates Down as Dollar and Pound Sterling Recover on US NFP Data

Euro sees a dramatic swing in fortune and is now lower agains the pouind sterling and dollar.

Main driver for EUR-USD today is US Non-Farm Payrolls, a strong figure was delivered.

The euro has given away its recent gains against both the dollar and British pound following the release of unambiguously strong American employment data.

Nonfarm Payrolls (May) read at 280K, analysts had forecast a reading of 225K showing a massive beat on expectations. The market reaction was to buy dollars and sell euros - the weakness in the euro was seen right across the board.

As such we have seen the pound to euro exchange rate (GBPEUR) recover with the rate reaching a high of 1.3754, this up from a morning low of 1.3538.

The euro dollar exchange rate is meanwhile seen at 1.1103, down from a morning peak of 1.1280.

Despite the strong data reading one analyst reckons the dollar may be getting a little ahead of itself.

“Fed Chair Janet Yellen won’t be getting too carried away with the better than expect nonfarm payroll data released today as the disappointment from the latest GDP numbers that showed the world’s largest economy contracted still lingers," says Dennis de Jong, managing director at UFX.com.

de Jong believes the situation in Greece will significantly impact on world markets and the proposed US interest rate hike will need to wait for a solid run of positive domestic data before Yellen can confidently take action. Today’s nonfarm payroll figures are just one step on what could turn out to be a longer-than-expected road toward higher rates.

Note that the rates mentioned above refer to the wholesale markets and when you make an international payment / transfer your bank will charge a spread at their discretion. However, using an independent currency provider will get you closer to the real market rate as they apply a smaller spread, in some instances this results in up to 5% more FX being delivered and no fees being charged, find out more.

Bond Markets Prompt Euro Strength

Bond markets were the prime driver of moves in the global currency markets this week with the euro being the main beneficiary.

“Another huge move in the bond markets, especially the 10-year German bund, which in-turn saw the EUR stage another strong rally. The last 2 days we have seen EURUSD rally 3-4%,” note Lloyds Bank Research in a note to clients on the matter.

Lloyds see the next resistance for the euro dollar pair at 1.1325/35 ahead of the 1.1450 highs and 1.1190/75 minor support ahead of 1.1040/20 stronger support.

A lot of this week's driving factor in the EUR was a number of EUR crosses breaking up through 1-2 month range highs forcing further covering of short positions held.

The euro to pound sterling conversion exchange rate has also seen significant moves higher on the bond market developments. EUR-GBP has risen to a high of 0.7386, it was all the way down at long-term support at 0.7055 only 8 trading days ago.

European Central Bank Prompts Euro Buying

At the heart of the most recent move in Eurozone bonds, and in extension the euro exchange rate complex, is the European Central Bank (ECB).

The June policy meeting and press conference stoked the fires with ECB President Draghi suggesting that the Bank was in fact not necessarily going to ‘front load’ their Euro purchases. The May decline in the euro was largely driven by the idea that the ECB would bring forward their bond purchases to account for a slow summer season.

“German 10 year rates jumped approximately 16.8bp on the idea that bond purchases would be spread out more evenly, providing ongoing stimulus to the economy. While this is long term bearish euros, in the near term, it has led to a significant adjustment in expectations that has translated into a steep decline in bond prices, sharp rise in yields and move higher for EUR/USD,” says Kathy Lien at BK Asset Management.

Greece has meanwhile delayed their latest IMF payment ensuring markets are allowed to fully focus on the US Non-Farm Payroll data due on Friday.

"The expectations are for another strong employment number in the region of 220-230k. As such, the greater risk this afternoon is for disappointment. A weak number would see the US bond yields move back towards their range lows and put the USD under renewed pressure, while a stronger than expected number has the potential to see the USD extend back to its recent range highs," say Lloyds.

Outlook for the Euro

From a technical perspective, the outlook suggests the euro to pound exchange rate could run higher to 1.15 as there is no major technical resistance levels present until that zone is reached.

Only a strong US Non-Farm Payroll report, due on Friday, has the potential to arrest the move higher. We would need a strong reading to swing momentum back in favour of the US Dollar.

The euro to pound exchange rate meanwhile could continue climbing until 0.7400-0.7450 is reached. This area proved to be solid resistance back in early May, we feel traders may not have the confidence to push the rate higher than this level.