EUR/USD Holds 1.1650 as Markets Weigh Diverging Economic Signals Before Major US Labor Report

EUR/USD has stabilized near 1.1650 following a five-day losing streak, with traders exercising caution in the lead-up to the highly anticipated US Nonfarm Payrolls (NFP) release. The pair continues to experience pressure from a firming US Dollar, which gained momentum after disappointing data from America’s labor market earlier in the week.

Eurozone Fundamentals Show Mixed Signals

The European Commission’s latest survey paints a nuanced picture of the Eurozone economy. Business sentiment showed improvement, with the Business Climate Index climbing to -0.56 in December from -0.66, suggesting a stabilization in corporate activity. Consumer confidence also rebounded notably, strengthening to -13.1 from -14.6, yet the broader Economic Sentiment Indicator retreated slightly to 96.7 from 97.1.

On the inflation front, the Eurozone Producer Price Index rose 0.5% month-over-month in November—a significant acceleration from the prior month’s 0.1% and exceeding forecasts of 0.2%. However, on an annual basis, producer prices contracted 1.7% for the fourth consecutive month. The unemployment rate ticked down to 6.3% in November from 6.4%, further supporting a stabilizing labor environment.

ECB Vice President Luis de Guindos reinforced the central bank’s commitment to its current policy stance on Thursday, noting that the current interest rate level remains “appropriate” despite lingering uncertainty. Crucially, the ECB’s latest consumer survey reveals that inflation expectations remain anchored, with one-, three-, and five-year expectations holding steady at 2.8%, 2.5%, and 2.2% respectively—all aligned with the central bank’s 2% medium-term target. This stability in expectations bolsters the case for the ECB to maintain its 2.00% policy rate unchanged.

US Labor Market Showing Cracks

The recent US Department of Labor report has introduced fresh headwinds for EUR/USD. Initial Jobless Claims rose to 208,000 in the week ended January 3—marginally below market expectations of 210,000 but climbing from the prior week’s revised figure of 200,000. More concerning is the uptick in Continuing Jobless Claims, which surged to 1.914 million from 1.858 million, signaling an expanding pool of workers remaining on unemployment benefits.

Looking ahead, December’s Nonfarm Payrolls are projected to show job creation of 60,000, marking a notable deceleration from November’s 64,000. This forecast, combined with the recent weakness in jobless claims data, suggests the USD’s recent strength may persist as markets recalibrate expectations for Federal Reserve rate decisions.

The Road Ahead for EUR/USD

With the NFP report on the horizon, EUR/USD faces a critical juncture. The pair’s stability near 1.1650 masks underlying tension between ECB rate-hold signals and a gradually softening US labor backdrop that could keep the Federal Reserve on the sidelines longer. Traders remain locked in a holding pattern, awaiting confirmation from the headline NFP figure to determine the next directional move for the currency pair.