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- EUR/USD consolidates below its highest level since June 17 amid a modest USD uptick.
- The USD looks to build on its recovery from the post-NFP swing low amid Iran tensions.
- Market attention now shifts to this week’s release of the latest US inflation figures.
The EUR/USD pair kicks off the new week on a subdued note and trades just above 1.1550 during the Asian session, well within striking distance of a fresh high since June 17, touched in reaction to the disappointing US jobs data on Friday.
The closely watched US Nonfarm Payrolls (NFP) showed that the economy lost 23K jobs in July, missing consensus estimates of 80K by a wide margin. Adding to this, the previous month’s reading was revised lower to show an addition of 20K jobs, compared to the 57K reported originally. Further details revealed that annual wage inflation, as measured by the change in the Average Hourly Earnings, eased to 3.2% from 3.4%. This offsets a dip in the Unemployment Rate to 4.1%, from 4.2% in June, and undermines the case for the US Federal Reserve (Fed) to raise interest rates.
The immediate market reaction, however, turns out to be short-lived as persistent uncertainties over efforts to reopen the critical Strait of Hormuz lend some support to the safe-haven US Dollar (USD). The USD Index (DXY), which tracks the Greenback against a basket of currencies, is now looking to build on Friday’s late rebound from its lowest level since June 17 and is turning out to be a key factor acting as a headwind for the EUR/USD pair. Traders, however, seem reluctant to place directional bets and opt to wait for further developments surrounding the Middle East crisis.
Over the weekend, Iran stated that talks with Oman to establish a safe shipping route through the strategic waterway are nearing an agreement. Tehran, however, cautioned that any deal would not result in an immediate reopening. Furthermore, Iran-backed Houthi militants in Yemen claimed a recent attack on Saudi Arabia’s Jazan refinery, while a tanker operated by the Abu Dhabi National Oil Co. came under attack in the Strait. This keeps the geopolitical risk premium in play and supports oil prices, fueling inflation fears and bets for at least one interest rate hike by the Fed in 2026.
The mixed fundamental backdrop, in turn, warrants some caution before positioning for an extension of the EUR/USD pair’s recent strong move up from the vicinity of mid-1.1300s, touched on July 28. Market attention now shifts to the latest US consumer inflation figures, due on Wednesday, which will be looked for more cues about the Fed’s policy path. Apart from this, the incoming geopolitical headlines will play a key role in influencing the USD price dynamics and producing some short-term trading opportunities around the EUR/USD pair.
