Euro Exchange Rates: EUR Unable to Break 1.10 Ahead of Crunch NFP Release

The euro to dollar exchange rate (EUR/USD) has failed to capitalise on the strength seen earlier in the week.

The move back towards 1.08 seen on Wednesday morning confirms an underlying negative trend remains the driving force of the EUR/USD pairing.

That said, there is an action-packed second half of the week with a major event at the Bank of England set to drive the pound / euro rate and US non-farm payrolls tipped to be crucial.

Indeed, the August non-farm payrolls due out of the United States have been dubbed by some as being the most important in years as they could well tip the balance towards a September interest rate rise.

This could well set the tone for euro / dollar over the remainder of 2015.

The issue of Fed 'lift-off' remains central to the outlook for the euro / dollar exchange rate confirming that at this time focus on the complex moves away from the Eurozone and to the United States.

EUR/USD was seen consolidating just before an assault of 1.1000 over the past 24 hours but this level appears to have ultimately been out of reach.

Above: The trend is still lower, despite recent ticks higher.

“In the wake of US 10-year yields recently grinding lower, towards the 200-day MAV at 2.14, we have also seen a sharp narrowing in UST-Bund spreads over the last couple of sessions. Unless and until the US data puts something of a floor under US yields, we may see a further squeeze in EUR USD shorts, risking a test towards 1.0996 highs seen yesterday,” suggests Jeremy Stretch, analyst with CIBC in Canada who holds the position that euro strength could still spring some surprises.

That said, Stretch says foreign exchange markets will require a more notable weakness in the US data for a significant move beyond this first resistance point, “we expect USD consolidation to remain largely contained, and look to buy dips in the DXY index back to 97.10,” says Stretch.

Further ahead, hourly resistance lies at 1.1278 (29/06/2015 high) while stronger resistance lies at 1.1436 (18/06/2015 high) notes technical strategist Yann Quelenn at Swissquote Bank in Gland, Switzerland.

Support can be found at 1.0850 as we note the pair has bounced off here over recent weeks and confirm dip-buyers are comfortable to risk recoveries at this point.

Quelenn is however forecasting an eventual decline to parity based on technical studies:

“Over the last month, the pair is setting lower highs therefore we remain bearish over the medium-term.

“In the longer term, the symmetrical triangle from 2010-2014 favors further weakness towards parity. As a result, we view the recent sideways moves as a pause in an underlying declining trend.

“Key supports can be found at 1.0504 (21/03/2003 low) and 1.0000 (psychological support). Break to the upside would suggest a test of resistance at 1.1534 (03/02/2015 reaction high).”

US Non-Farm Payrolls and Fed Lift-Off

As mentioned, NFP figures could prove to be the highlight of the month's trading calendar as members of the US Federal Reserve will be looking for confirmation that the US economy is growing at such a pace that it now warrants higher interest rates.

Expectations of an imminent rate hike from the Fed have increased following an interview with the Atlanta Fed's Lockhart in the Wall Street Journal.

According to Lockhart it would take a significant deterioration in the data to get him not to support a hike in September.

Lockhart is one of five regional Fed directors who vote in the Fed this year and his statement could be a signal that the Fed thinks that the market has gone too far when it comes to turning down the probability of September hike.

"However, NFP on Friday (with a last minute indication from ADP today) is still viewed as highly important for the odds of a Sep hike," Karl Steiner at SEB Bank reminds us.

Markets are looking for a figure of 223K to be printed.