Euro may rebound on US data

The Euro to Dollar exchange rate (EURUSD) could rebound over the coming days according to analysts who see scope for a further unwinding of recently oversold conditions, but the release of US economic data this week, especially the Non farm payrolls will likely dictate this situation.

The Dollar remains dominant on a multi-week timeframe as markets respond to signs of ongoing U.S. economic outperformance relative to that of the Eurozone, which has shored up the advantage of U.S. bond yields over their Eurozone counterparts.

The fundamentals are further backed up by the recent 'risk off' tone to markets as investors feared for global economic growth amidst surging long-term bond yields across the developed markets.

The extent to which these overarching themes continue to play out over the coming days will impact the direction of Euro-Dollar.

According to some analysts, the pair was left deeply oversold last week and subsequent profit-taking and a rebalancing in the market could extend over the coming days, favouring a further recovery in the Euro.

“Two solid up days (so far) for the EUR barely makes a dent in the sustained sell-off seen since July’s peak but EUR is oversold and there is ample room for a correction, at least in recent losses." Noted Shaun Osborne, FX Strategist at Scotiabank

The Eurozone's data and event calendar is light this week and the focus for markets is firmly on the U.S. where a slew of data releases are in focus and some believe the numbers will be positive which will only add to the current momentum of the greenback.

"Upcoming US data, like the ISM nonfarm payrolls, are unlikely to stall current USD momentum, in our view. The releases are likely to be robust and help keep the dollar well-bid," says Dominic Schnider, a Strategist at UBS.

Such an outcome would not be a surprise in itself given the U.S. outperformance theme is now well understood, therefore the bigger market reactions would lie with an undershoot.

The week ends with the all-important release of U.S. non-farm payrolls that tend to give the final word on how the jobs market is evolving and the headline is expected to print at 150K and a beat would prove supportive of the Dollar as it would likely shore up U.S. yields as markets bet the Fed has little choice but to go with another rate hike in November.

A disappointing figure would be a huge relief for the Euro and likely see the currency rally into the weekend.