EURUSD Finds Support as Oil Prices and the Dollar Ease, with the Recovery Awaiting Confirmation from US Jobs Data

(MENAFN- MENAFNEditorial)

Written by Linh Tran, Market Analyst at XS


EURUSD traded around 1.1185 during the Asian session on November 3, as easing oil prices and US Treasury yields reduced pressure from the dollar, helping the pair stem its prolonged decline. However, this recovery remains heavily dependent on developments outside the euro area, while interest rate differentials and challenges facing the European economy continue to limi’ the pair’s upside.
The latest support came from hopes of pr–gress in US–Iran negotiations, which contributed to a decline of more than 7% in Brent crude prices on November 2.
Lower oil prices helped ease inflation concerns and push US Treasury yields down, reducing support for the dollar. By the morning of November 3, the 10-year yield was hovering around 4.91%. For Europe, if energy prices remain lower, cost pressures on businesses and households could ease, creating more favorable conditions for the economy and the euro.
Nevertheless, the Fed held interest –ates at 3.75%–4.00% at its latest meeting and has leaned toward waiting for further economic data. A single sharp decline in oil prices is not yet enough to conclude that this cautious stance will change.
In my view, interest rate support for the dollar is unlikely to weaken easily on lower oil prices alone. If upcoming data continue to show strong demand and persistent price pressures, expectations that the Fed will maintain a restrictive policy stance could strengthen, making it difficult for EURUSD to extend its recovery.
In Europe, comments on November 2 from ECB Governing Council member Peter Kazimir reinforced expectations of further rate hikes. He argued that additional tightening was needed to prevent inflation from becoming entrenched, while warning that markets might underestimate the extent of action required. Although this does not represent a collective commitment from the ECB, the message could still support the euro. However, the extent of that support will depend on how far markets adjust their rate expectations and how they assess the impact on growth.
This is also why I remain cautious about the prospect of a sustained EURUSD rally. At its October 29 meeting, the ECB held its deposit rate at 2.50% and warned that the energy shock was both increasing inflation risks and weighing on the growth outlook. If the ECB has to raise rates to prevent price pressures from spreading, it will also increase borrowing costs for businesses and households. Expectations of further tightening may therefore support the euro in the short term, but the positive impact will be limited if the economic outlook continues to weaken.
In the coming sessions, I lean toward a gradual near-term recovery in EURUSD rather than a strong rally driven solely by easing oil prices. The US jobs report due at the end of the week will be an important test for interest rate expectations. If employment and wage growth slow while energy prices continue to decline, the pair will have more room to rise. Conversely, strong labor market data could restore support for the dollar. I therefore see the current move as an improvement in the near-term outlook, while further upside still needs confirmation from the data.

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