European currencies have retreated from local highs amid a decline in risk appetite and ahead of the release of key US labour market data. Market participants are opting to reduce exposure before the publication of the employment report, which could set the direction for the US dollar and adjust expectations regarding the Federal Reserve’s next policy steps. As major players return following a period of reduced liquidity, the market is becoming more sensitive to fundamental drivers, while caution is increasing ahead of the release of high-impact statistics.

Overall, the market remains in a wait-and-see phase, characterised by restraint and a strong focus on upcoming US macroeconomic data. The employment report may become a key reference point, capable of shaping future risk allocation and setting the tone for movements in both the dollar and European currencies.

EUR/USD

The test of the psychological 1.1800 level three weeks ago proved unsuccessful for euro buyers. Technical analysis of EUR/USD points to a potential decline towards the 1.1580–1.1620 area, as bearish pressure has intensified following the formation of the dark cloud cover pattern. Should the NFP data come in weaker than expected, EUR/USD may find short-term support near 1.1600 and rebound towards 1.1700–1.1740.

Key events for EUR/USD:

• today at 09:00 (GMT+2): German industrial production;
• today at 13:00 (GMT+2): Spanish business confidence index;
• today at 15:30 (GMT+2): US nonfarm payrolls.

GBP/USD

Selling pressure also persists in GBP/USD. After rebounding from 1.3560 and forming a bearish dark cloud cover pattern, the pair entered a downward correction and is currently trading near 1.3400. If sterling sellers manage to break below this support, the price may continue to decline towards the 1.3340–1.3370 zone. A rebound from current levels could trigger a recovery towards resistance at 1.3500.

Key events for GBP/USD:

• today at 15:30 (GMT+2): US average hourly earnings (year-on-year);
• today at 17:00 (GMT+2): University of Michigan consumer sentiment index;
• today at 20:35 (GMT+2): speech by FOMC member Thomas Barkin.

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