EUR/USD gains ground on hawkish Lagarde, nonfarm payrolls loom

• EUR/USD jumps after Lagarde says core CPI too high
• US nonfarm payrolls expected to ease to 190,000

The euro is drifting on Friday, trading at 1.0777.

EUR/USD posted its strongest one-day performance since late April on Thursday, gaining 0.69%. The driver behind the upswing was a hawkish ECB President Lagarde, who said, “There is no clear evidence that underlying inflation has peaked”. Lagarde’s remarks were made just after inflation data showed that inflation had fallen sharply in the eurozone. Core CPI, which is followed closely by the ECB, also eased, from 5.6% in April to 5.3% in May. This was below the consensus of 5.5%.

Lagarde seems intent on keeping expectations of a pause at bay, saying that “we still have ground to cover” before rates hit their peak. Other ECB officials hinted on Thursday at further rate increases, and the markets are expecting a 0.25% hike at the June 15^th meeting. If inflation continues to fall, pressure will grow on the ECB to take a breather and pause rates.

Will nonfarm payrolls beat expectations?

The US releases nonfarm payrolls later today, in a highly-anticipated release. The US labour market has been solid, despite the Fed’s aggressive rate hikes. The Fed would like to take a pause, but it first needs the labour market to cool down. The ADP Employment report, which precedes nonfarm payrolls, was solid, although investors tend to view that release with a grain of salt. ADP came in at 278,000, down slightly from 291,000 and crushing the consensus of 170,000. Nonfarm payrolls are expected to fall to 190,000, following 253,000 prior. If nonfarm payrolls mimic the ADP and surprise to the upside, it could cement a Fed rate hike at the June 14^th meeting. Market pricing has been swinging sharply, with the odds of a pause currently at 76%. Only a week ago, the odds of pause stood at 36%.

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EUR/USD Technical

• There is resistance at 1.0805 and 1.0882
• 1.0753 and 1.0675 are providing support

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