Euro holds gains above 1.1600 despite robust US jobs data, traders eye ECB rate decision

The EUR/USD pair posts modest gains near 1.1615 during the early Asian session on Monday. However, the potential upside for the major pair might be limited amid a stronger-than-expected U.S. August Nonfarm Payrolls (NFP) report. US markets are closed on Monday for Labour Day. 

US Nonfarm Payrolls (NFP) increased by 162,000 in August, compared to an upwardly revised rise of 21,000 in July, according to the US Bureau of Labor Statistics (BLS) on Friday. This figure came in stronger than expectations of 56,000. Additionally, the Unemployment Rate held steady at 4.1% in August. 

Financial markets boosted rate hike bets at the US Federal Reserve's (Fed) September meeting, which might lift the US dollar (USD) against the Euro (EUR). Traders are now pricing in nearly 58.3% odds of a 25 basis points (bps) rate increase at the Fed's September meeting, up from about 50.2% before the data, the CME FedWatch tool showed.  

"The American labor market is in good condition heading into the end of the year," said Joe Brusuelas, chief economist at RSM. "The data does lend support to the hawks at the Fed who are growing impatient with inflation,” Brusuelas added. 

The attention will shift to the European Central Bank (ECB) meeting on Thursday. The ECB is likely to raise interest rates at its upcoming policy meeting, which would bring its deposit rate by a quarter-point to 2.50%, according to a Reuters poll published on Thursday.

Dollar focus turns to whether Fed signals start of tightening cycle

Nordea’s strategists argue that the key issue for the Dollar now is not simply whether the Fed delivers the next move, but how it frames the policy path beyond it. They stress that “the more important question for the dollar is whether the Fed signals that September marks the start of a tightening cycle or merely a one-off adjustment,” with market reaction likely to hinge on whether policymakers clearly indicate an extended series of hikes or a more limited recalibration.

Technical Analysis: EUR/USD maintains a constructive outlook above the 100-day SMA

In the daily chart, EUR/USD holds a modest bullish bias as it trades above the 100-day moving average (MA) and above the Bollinger middle band, suggesting dip-buying interest just underneath spot. The Relative Strength Index (14) at 55.3 hovers in neutral-positive territory, hinting that upside momentum is constructive but not yet overstretched.

On the topside, initial resistance emerges at the Bollinger upper band around 1.1710, where recent rallies could face supply. On the downside, immediate support is seen at the Bollinger middle band near 1.1612, followed by the 100-day MA at 1.1565; a deeper pullback would expose the lower Bollinger band support close to 1.1515.