The euro rose against the US dollar on Friday, with EUR/USD near 1.1777, up about 0.44% on the day. The move followed mixed US labour data that kept pressure on the dollar.
US Nonfarm Payrolls increased by 115K in April, above the 62K forecast, but slower than March’s 185K (revised from 178K). The Unemployment Rate stayed at 4.3%, matching expectations.
Mixed Wage Data And Fed Implications
Average Hourly Earnings rose 0.2% month on month, below the 0.3% forecast and the same as the prior reading. Annual wage growth rose to 3.6% from 3.4%, but missed the 3.8% forecast.
The figures point to a cautious Federal Reserve stance, with policy easing expected to remain on hold for now. Inflation risks were linked to high oil prices and Middle East tensions.
Markets also watched prospects of a US-Iran deal to end the war, despite reports of clashes near the Strait of Hormuz. Donald Trump said a ceasefire remained in place, with Iran expected to respond via Pakistani mediators.
The US Dollar Index traded near 97.90, down about 0.40%. EUR/USD was set to end the week higher for a second straight week.
Comparing Market Setups Across Years
Looking back to this time in 2025, we saw the EUR/USD climb towards 1.1800 as the market reacted to mixed American labor figures and hopes for a deal in the Middle East. That combination of slowing wage growth and easing geopolitical tensions put significant pressure on the dollar. The situation today presents a different set of opportunities.
The dollar is once again on the defensive, but now it is due to a more defined cooling of the U.S. labor market. The most recent data for April 2026 showed Nonfarm Payrolls grew by only 160,000, well below the 190,000 expected, and the unemployment rate has ticked up to 4.1%. This confirms a slowdown from the more ambiguous data we saw last year and strengthens our conviction that the Federal Reserve will act.
This environment suggests that implied volatility in EUR/USD options may be underpriced, especially for contracts expiring in the late summer. Markets are currently pricing in a 65% chance of a Federal Reserve rate cut by September, a sharp increase from just 40% a month ago. Any deviation from this expectation will create sharp movements, rewarding those who own options.
Therefore, traders should consider buying EUR/USD call options or establishing bull call spreads to target a move above the 1.1000 resistance level. The weak U.S. data provides a fundamental reason for dollar weakness, which we expect to continue into the third quarter. Historically, the dollar index has fallen by an average of 2-3% in the three months following the start of a Fed easing cycle.
However, we must remain aware of external risks that could trigger a flight to safety and strengthen the dollar unexpectedly. Unlike the de-escalation we anticipated in the Middle East last year, renewed tensions in the South China Sea are now a persistent concern. A sudden flare-up could quickly reverse the current trend.
Positioning for a weaker dollar can be timed using three-to-six-month options that encompass the key central bank meetings over the summer. The European Central Bank is showing reluctance to cut rates further, creating a policy divergence that should favor the euro. This strategy allows traders to capitalize on the expected policy shift while managing downside risk.
