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EURUSD: dollar bolstered by rally in 10-year Treasuries

The EURUSD pair closed lower on Thursday, March 4, slipping 0.81% to 1.1964. Trading activity was low-key as market participants awaited Fed Chairman Jerome Powell’s speech.

The euro held steady at 1.2030 until the North American session. In European trading, buyers’ hands were tied due to lackluster retail sales. January retail sales in the eurozone plunged 5.9% compared to the previous month. The decrease in the indicator to a low last seen in April 2020 was attributable to the extension of lockdown measures in a number of Eurozone countries. The reading was projected to decline by 1.1%.

Sterling soared to 1.4017 on the back of remarks by UK Treasury Secretary Rishi Sunak, who unveiled a new £65 bln package of measures aimed at helping the country's economy recover from the crisis caused by the coronavirus pandemic.

During the North American session, Fed Chairman Jeremy Powell’s remarks drove all major currencies into negative territory. Powell had nothing to say about yield curve control. He merely noted that he expects some inflationary pressures going forward but they will not likely be enough to spur the central bank to hike interest rates. Market participants interpreted his comments as unwillingness to rein in rising sovereign yields.

The US 10-year bond yield spiked to 1.57%, topping last week’s high of 1.56% on concerns that rising inflation will force the Fed to tighten monetary policy faster than the market anticipates. The dollar strengthened across the board, while US equity indices retreated.

Todays macro schedule (GMT+3)

  • 10:00 Germany: factory orders (January)
  • 11:00 Switzerland: SNB foreign exchange reserves (February)
  • 11:30 UK: Halifax house price index (February)
  • 16:30 US: non-farm payrolls report: un employment rate and non-farm payrolls private (February); US and Canada: balance of trade (January)
  • 18:00 Canada: Ivey PMI (February)
  • 21:00 US: Baker Hughes weekly oil rig count

Current outlook

In today’s Asian trading, the euro fell to 1.1952 due to yesterday’s upturn in 10-year Treasuries to 1.58%. All eyes are now on the labor market report (NFPs). According to the median consensus, the US economy created 182,000 new jobs in the non-farm sector, while unemployment stood at 6.3%. Goldman Sachs expects the number of new jobs to reach 225,000. The NFP is unpredictable, so today we can expect high volatility at 13:30 GMT. Market participants react to several components in the report: unemployment, labor force participation rate, average hourly earnings, and revised readings ​​for the previous two months.

Powell upset buyers in all markets except for oil. The price action for the key pair is currently hovering near key Gann support levels. If the 135-degree angle fails to hold, buyers risk a decline to the range of 180-202 degrees (1.1892-1.1866) as was the case on March 2. On the daily TF, the lower line of the descending channel runs through 1.1886, which is built on three values: H1.2349 (high on January 6, 2021), H1.2243 (high on February 5, 2021), and L1.1952 (low on February 5, 2021). If the NFP report comes in weak, the euro could stage a rebound. Players should watch for how the Treasury yield and the equity market react to the report, and then draw their conclusions.

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