EUR/USD faces downside risk as a 50bp Fed cut may be elusive
Sept 6 (Reuters) -EUR/USD hit a 7-session high after the August payrolls came in below estimates but then turned sharply lower as investors pared back expectations for the Fed to begin its cutting cycle with a 50bp reduction.
August non-farm payrolls came in at 142k versus estimates of 160k and the prior was revised down to 89k from 114k while the unemployment rate ticked down to 4.2% from 4.3% in July.
Average hourly earnings climbed to +0.4% versus +0.3% estimates and from +0.2 in July while the average workweek held at 34.3.
Earnings and hours worked suggest the jobs market may not be as soft as headline data indicated.
Initially U.S. yields US2YT=RRUS10YT=RR fell and German-U.S. spreads US2DE2=RR tightened, but those moves reversed as investors reduced the probability the Fed will cut by 50bp when it delivers its rate decision on Sept. 18.
NY Fed President JohnWilliams indicated it's time to cut, but his remarks disappointed investors as he gave no indication that he favors a 50bp move, while maintaining that the rate path will be data dependent.
Rate differentials at the end of Fed SRAM26 and ECB FEIH6 cutting cycles tightened, which may drive EUR/USD longs to exit positions.
Technicals may also be a concern for longs. Daily RSI diverged on the high and an inverted hammer candle formed.
EUR/USD bears may put the 200-DMA in their sights.
For more click on FXBUZ
(Christopher Romano is a Reuters market analyst. The views expressed are his own)
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