EUR/USD touched fresh three-week lows on Wednesday before closing slightly lower, as solid U.S. employment forecasts provided optimism for further signals of continued improvement in the labor market ahead of a critical government jobs report at week's end.
The currency pair traded between 1.0825 and 1.0881, before settling at 1.0869, down 0.0018 or 0.06% on the session. The euro has closed lower against the dollar in six of the last nine and 11 of the last 14 sessions. Since surging to three-month highs on February 11, the euro has plummeted by nearly 4% against its American counterpart.
EUR/USD likely gained support at 1.0538, the low from December 3 and was met with resistance at 1.1496, the high from Oct. 15.
On Wednesday morning, the ADP Research Institute said non farm private employment rose by 214,000, last month, topping expectations for gains of 190,000. It came after ADP downwardly revised employment data in January by 12,000 to 193,000. While ADP's forecasts do not always mimic the results from the Labor Department's monthly report, their predictions have been fairly accurate over the last two months.
When the Labor Department releases its February jobs report on Friday, the Bureau of Labor Statistics is expected to report that nonfarm payrolls rose by 190,000 last month, following an increase of 151,000 a month earlier. The unemployment rate is expected to remain steady at 4.9%, one month after falling to its lowest level in eight years. The Labor Force Participation Rate also ticked up 0.1 to 62.7%, as the struggling manufacturing industry added 29,000 positions, its best one-month performance since November, 2014.
Analysts will also a keep close eye on monthly wage gains after hourly workers saw their earnings surge by 0.5% in January, amid a wave of minimum wage hikes at numerous states throughout the country. Last month, hourly wages were expected to rise by 0.2%, according to consensus forecasts. Federal Reserve chair Janet Yellen has continually reiterated that the Fed will employ a data driven approach, as it weighs the timing of its next interest rate hike. While the Fed has judged that the labor market is close to returning to full employment, sluggish inflation remains below its targeted objective of 2%.
A robust jobs report on Friday could compel the Federal Open Market Committee to accelerate its pace of tightening when it meets next on March 15-16. Any rate hikes by the U.S. central bank this year are viewed as bullish for the dollar, as foreign investors pile into the greenback in order to capitalize on higher yields.
Elsewhere, currency traders continued to evaluate downbeat euro zone inflation and manufacturing data from earlier this week, as they await next week's key interest rate decision from the European Central Bank. At the closely-watched meeting, the ECB's Governing Council could lower its deposit and marginal lending facility rates and extend the scope of its €60 a month quantitative easing program in an effort to jumpstart to economic growth. The ECB is widely expected to reverse its monetary policy course from January when it held its benchmark interest rate at a record-low of 0.05%.
"The review has to be seen against the background of increased downside risks to the earlier outlook amid heightened uncertainty about emerging market economies' growth prospects, volatility in the financial and commodity markets, and geopolitical risks," ECB president Mario Draghi said in a letter to a member of the European Parliament on Tuesday.
The U.S. Dollar Index, which measures the strength of the greenback versus a basket of six other major currencies, rose to a four-week high at 98.59, before falling back to close at 98.20, down 0.14% for the session.