On 4 September, market attention centres on the August US employment report. According to CNBC, the consensus forecast anticipates only 53,000 nonfarm job additions following July's decline, underscoring the labour market's persistent weakness. Meanwhile, the Federal Reserve's attention is increasingly turning toward inflation risks. Employment data carries particular weight for the dollar because the Fed has explicitly tied the trajectory of its September policy decision to the balance between labour market softness and persistent inflation. In the eurozone, a Reuters poll found that all 65 economists surveyed expect the ECB to raise its deposit rate by 2.50% at its 10 September meeting — a 25 basis point increase — while roughly 91% anticipate the rate will stay at that level through year-end, a divergence in policy sequencing between the two central banks that has been a recurring driver of EUR/USD positioning this year.

Technical Analysis of EUR/USD

On the four-hour chart, a peak formed near 1.1700 on 21 August, marking the start of a downtrend and a descending trendline. Price repeatedly rejected this trendline to the downside before reaching a low of 1.1570 on 2 September. The next day, the trendline was broken to the upside on rising volume, and price is now attempting to consolidate above it, as well as above the upper boundary of the current market profile at 1.1610.

Above the established market density sits a red resistance zone around 1.1660. Should the breakout prove false and price resume its decline, the pair could trade within the market density or move lower still. For that scenario to unfold, price would need not only to test the upper boundary but also break through the Point of Control (POC) at 1.1600 and the profile's lower boundary at 1.1580. Just below that lower boundary, a green support area lies near 1.1570.

The RSI + MAs indicator currently shows readings of 58, 45 and 45. The oscillator has climbed above its neutral zone, but both moving averages remain red and sit close to its lower boundary, meaning they do not yet confirm the breakout. This kind of signal divergence is common at early stages of potential reversals, which is why traders often wait for multiple indicators and price structure to align before treating a trendline break as confirmed.

Key Takeaways

The divergence between the RSI and its moving averages leaves the durability of the recovery in question, and the market may require additional time before the other components of the breakout fall into place. The August US employment report could act as a further catalyst for the pair in the hours ahead, with its importance for the Fed's September decision heightened by the expected ECB rate hike.

Source: FXOpen Blog