EUR/USD Surges as Weak U.S. Jobs Data Forces Fed Rate Cut Bets

The EUR/USD pair advanced sharply, hitting 1.1714 during Friday’s New York session after the U.S. nonfarm payrolls report revealed only 22,000 jobs created versus expectations of 75,000. The unemployment rate ticked higher to 4.3%, while wage growth stayed steady at 0.3% month-on-month. That combination triggered an aggressive sell-off in the dollar, with the U.S. Dollar Index (DXY) sliding 0.70% to 97.57 and U.S. 2-year yields collapsing to 3.50%, the lowest in five months. Traders have now priced a 100% probability of a 25-basis-point rate cut at the September 17 FOMC meeting and a 14% chance of a 50-basis-point cut, dramatically shifting sentiment in favor of the euro.

Political Pressures in Europe Complicate the Rally for EUR/USD

Even with dollar weakness driving momentum, the euro is facing its own headwinds from French political uncertainty. Elections looming in France have stirred volatility, with investors fearing policy paralysis or market disruptions depending on the outcome. Despite this, the euro gained ground after the Eurozone’s Q2 GDP revision showed annualized growth at 1.5%, slightly above expectations, while Germany’s DIW institute projected a modest 0.2% GDP improvement in 2025. Those data points suggest the European economy, while fragile, may be stabilizing, providing some support to the common currency.

DXY Breakdown Unlocks Room for Euro Upside

The DXY’s fall below its critical 97.70 support level marks a decisive technical break. That level had held since mid-August, and the failure opens a path toward the 96.70–96.80 zone. Such weakness in the dollar index is typically correlated with stronger EUR/USD flows. Friday’s nonfarm payrolls miss also tagged the unfinished July auction at 97.43, adding technical confirmation that bearish momentum in the dollar is broadening. Unless the DXY reclaims 98.00 in the coming sessions, EUR/USD has a clean runway toward retesting 1.1790–1.1829.

Technical Picture for EUR/USD Points Toward 1.1800 Resistance

On the charts, EUR/USD has broken decisively above its 22-day simple moving average, with the Relative Strength Index holding above 50, reinforcing bullish momentum. The pair printed a morning star formation around 1.1400 in early August before reclaiming upside traction. Now, the key test lies at the 1.1759–1.1800 zone, with a clean break exposing the year-to-date high at 1.1829. A failure at resistance could see a pullback toward 1.1650 and deeper to 1.1600, with major support at the 100-day SMA around 1.1526. For now, momentum favors continuation higher as long as EUR/USD remains above 1.1700 on a closing basis.

Macro Drivers Favor Euro Strength Over Dollar

Beyond the immediate labor data shock, broader macro dynamics are supporting EUR/USD. Softer U.S. inflation data last month fueled disinflation expectations, reducing the perceived impact of Trump’s tariffs on price growth. Traders now await fresh CPI and PPI reports next week, where another weak print will cement the case for multiple Fed cuts before year-end. Futures tied to December 2025 fed funds contracts already price in nearly 65 basis points of easing. Meanwhile, the ECB is widely expected to hold rates steady, with market probabilities showing a 91% chance of no move, leaving the policy divergence tilted against the dollar.

Long-Term Outlook Signals Bullish Continuation for EUR/USD

From a structural standpoint, EUR/USD’s rally from the 2022 low at 0.9534 remains intact, with the pair now eyeing the 1.1916 projection zone. Technical analysts highlight that the multi-decade downtrend could already be reversing, with the next major retracement level sitting at 1.2019. Sustained strength above 1.1829 would confirm the bullish case and open the way toward 1.20, with 1.3554 flagged as a long-term extension target if momentum persists. As long as support at 1.1604 holds, the risk bias remains to the upside.

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• The USD/JPY weekly forecast indicates further weakness in the US labor market.
• The US economy added only 22,000 jobs in August.
• Next week, the US will release its consumer and wholesale inflation reports.

The USD/JPY weekly forecast indicates further weakness in the US labor market, which supports a more dovish Fed.

Ups and downs of USD/JPY

USD/JPY ended the week bullish but closed well below its highs as the dollar dropped. At the start of the week, the dollar recovered briefly against the yen as traders awaited crucial US employment figures. However, as the data came in, it became clear that the labor market had softened more than expected.

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Nonfarm payrolls revealed that the US economy added only 22,000 jobs in August, compared to the forecast of 75,000. Meanwhile, the unemployment rate rose to 4.3% as expected. The poor figures increased expectations for Fed rate cuts, weighing on the dollar.

Next week’s key events for USD/JPY

Next week, the US will release its consumer and wholesale inflation reports, which will shape the outlook for Fed rate cuts. Already, market participants are fully pricing a rate cut in September. However, the outlook for future rate cuts is still changing. Moreover, there is a chance the Fed will opt to deliver a massive rate cut this month.

If consumer inflation comes in below estimates, rate cut expectations will increase, and the dollar will extend its decline. On the other hand, a positive figure could ease rate cut bets.

USD/JPY weekly technical forecast: Bears prepare to challenge the channel support

On the technical side, the USD/JPY price trades in a bullish channel with clear support and resistance lines. However, the price is also chopping through the 22-SMA, a sign that bears are showing strength. This also indicates that the move is corrective.

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Previously, the USD/JPY was trading in a well-developed downtrend, mostly staying below the 22-SMA. However, the decline paused when it reached the 140.01 key support level. Here, bulls took charge, making higher highs and lows. However, the new trend was shallow and corrective.

Within the bullish channel, the price has broken below the SMA, and the RSI has dipped below 50. Therefore, bears are currently stronger and could soon challenge the channel support. Given that the price is currently in a corrective move, a breakout would likely lead to an impulsive move. If bears break out of the channel, the price will fall to retest the 140.01 support level.

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USD/JPY Technical Analysis

The US dollar has plunged against the Japanese yen during the trading session like you would expect. But we are sitting right at the 50 day EMA and we’re still very much within the consolidation area that we have been in for quite some time. With that being the case, I think you’ve got a scenario where not much has changed again. And we’ve seen candlesticks like this recently. So, it’s really not until we break down below 146 yen that I think anything has changed here either.

AUD/USD Technical Analysis

The Australian dollar has rallied quite nicely, but again, it hasn’t really reached escape velocity. We have a much sloppier area to deal with here, with 0.66 offering resistance. If we were to break above there, then we can start to have a conversation about a much bigger move. Short-term pullbacks, I think, continue to be a very real possibility, but if we were to break above the top of the candlestick on Thursday, July 24, I think at that point, you really start to see the Australian dollar take off.

This will be a US dollar centric move. So, you’ll see the dollar fall apart everywhere. And then you’ll see it play out here, which the Australian dollar, for what it’s worth, has been a laggard.

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GBP/USD Pressured by Diverging Fundamentals

The pound is trading in volatile fashion against the dollar as GBP/USD hovers around 1.3515, rising 0.6% on the day after dismal U.S. labor data. Nonfarm payrolls added just 22,000 jobs in August compared with forecasts of 75,000, while unemployment ticked up to 4.3% from 4.2%. The weak jobs print sent U.S. 10-year yields tumbling 2% to below 4.1%, dragging the dollar index to its lowest since July at 97.50. This collapse in dollar momentum allowed sterling to reclaim levels above 1.35 despite deep concerns surrounding the UK’s fiscal position and sticky yields.

UK Fiscal Concerns Limit Sterling Upside

While the dollar’s slump has temporarily lifted GBP/USD, investors remain cautious about the UK outlook. Thirty-year gilts recently touched their highest yield since 1998, reflecting market worries about Britain’s debt trajectory ahead of the November budget. Sterling peaked near $1.38 in July, but analysts expect sideways trade below 1.35 in the short term as fiscal risks cap bullish attempts. The market currently sees just an 18% chance of a Bank of England cut in November compared with 67% one month earlier, showing how sharply rate expectations have shifted with yields projected to stay higher than peers for longer.

U.S. Labor Weakness Reframes Fed Policy Bets

The weak NFP print has reshaped expectations for the Federal Reserve, with CME FedWatch showing 75% odds of consecutive 25-basis-point cuts in September and October. ADP data had already hinted at labor fragility with just 54,000 private-sector jobs added in August compared with 106,000 in July. Fed speakers have acknowledged risks, with Chicago’s Goolsbee highlighting deterioration in the job market, while New York’s Williams maintained that gradual easing remains an option if inflation allows. The dovish tilt is pulling the dollar lower across the board, but market positioning remains sensitive to every labor release.

Technical Picture for GBP/USD

On the charts, GBP/USD trades within a bearish channel but currently sits above its 30-period SMA with RSI above 50, signaling bulls are trying to seize momentum. A push through channel resistance could lift the pair toward 1.3575, confirming another impulsive move higher after the recent corrective phase. If momentum stalls, immediate support lies near 1.3416, followed by 1.3376 and 1.3341. Failure to defend those levels would re-expose the August low at 1.3142. On the topside, resistance zones cluster around 1.3489, then 1.3543, with a breakout targeting July’s 1.3789 peak.

Sterling’s Relative Strength Against Majors

The heat map of currency performance shows sterling was strongest against the dollar, gaining 0.66%, while only marginally weaker versus the euro at -0.09%. GBP also outperformed the Canadian dollar by 0.53% and gained 0.92% against the Australian dollar, underscoring how much dollar weakness drove the move. Despite this strength, sentiment remains fragile as traders recognize sterling’s rally is built more on U.S. weakness than UK strength. The UK’s fiscal risk premium means any rebound in dollar yields could quickly unwind recent gains.

Outlook for GBP/USD

Short-term dynamics are dominated by U.S. labor data and Fed policy bets. If the Fed confirms rate cuts in September and October, GBP/USD could extend toward 1.36–1.38, though UK fiscal risks may prevent a sustainable break higher. Conversely, stronger-than-expected U.S. data or hawkish Fed pushback could see the pair retest 1.33 or lower. With MUFG projecting 1.40 for GBP/USD by Q2 2026 on expected dollar weakness, the longer-term trajectory remains bullish, but near-term trading is likely to remain volatile within a broad 1.3140–1.3595 band.

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