Forex markets brace for US payrolls as dollar tests key support
Investors await the US Nonfarm Payrolls report with the dollar index challenging trendline support, while the euro and pound consolidate near resistance levels.
Foreign exchange markets are positioning ahead of the US Nonfarm Payrolls report, with the US Dollar Index (DXY) trading at 99.76, below the psychological 100.00 mark. The index is challenging an ascending trendline at 99.42, with the Relative Strength Index (RSI) at 36 indicating oversold conditions. A decisive break below this level could expose support at 98.91 and 98.27, while a recovery might target 100.36 and 100.82.
The dollar’s movement follows the Federal Reserve’s recent meeting, where policymakers signalled a focus on labour market data. Markets are now assessing whether a positive payrolls report will reinforce expectations for a more accommodating monetary policy stance later this year. This comes after July’s jobs data showed an unexpected contraction of 23,000 jobs, which had previously fuelled expectations of a rate pause.
In Europe, the European Central Bank maintained its main interest rate on overnight deposits at 2.25%, reiterating a data-dependent stance. Investors are now monitoring upcoming German industrial production and eurozone retail sales statistics to gauge domestic demand recovery. The ECB has noted that inflation is approaching its 2% target, though upside risks remain a concern for policymakers.
Sterling is digesting the Bank of England’s decision to leave the Bank Rate unchanged at 3.75%. The Pound (GBP/USD) is consolidating around 1.3459, holding above the 50-day and 100-day Exponential Moving Averages. Immediate support sits at 1.3417, with resistance at 1.3507. Investors are scrutinising labour market activity and consumer spending data to determine if easing inflation can be sustained without a sharper slowdown in growth.
The Euro (EUR/USD) is testing resistance near 1.1559, trading above the 50-day EMA but below the 100-day EMA, with the RSI at 62. A sustained break below 1.1500 would expose support at 1.1470. Meanwhile, US equities rose on Thursday as President Donald Trump and Chinese President Xi Jinping commenced a two-day summit in Beijing, with the Dow Jones Industrial Average gaining 0.8%.
