EUR/USD climbs to highest in over 5 months ahead of crucial NFP report

Investing.com - The last day of the week could prove to be a decisive one for EUR/USD, whose strong rise over the last few days will be put to an important test this Friday. Indeed, investors are anxiously awaiting the U.S. employment figures for November, after the currency pair last night reached a peak of 1.0539, the highest since June 29.

Recall that the Euro-Dollar's rise this week is largely explained by Fed boss Jerome Powell's speech confirming the prospect of a slower Fed rate hike in the next FOMC meeting.

And while the market was already largely anticipating a 50 basis point rate hike (from 75 basis points in the previous four meetings) prior to Powell's speech, the market conviction that the Fed is preparing to "pivot" was still reinforced, which weighed on the dollar, to the benefit of EUR/USD.

Christine Lagarde's comments last night did not stop the rally, as the ECB President said that monetary policy is complicated by uncertainties and that central banks must continue to work to bring inflation back to target.

NFP report could be key for EUR/USD today

For today, the fate of the EUR/USD will largely depend on the NFP report on U.S. job creation in November. The consensus forecast calls for job creation to slow to 200k from 261k in the previous month, with the unemployment rate holding steady at 3.7%, and average hourly earnings expected to rise to 4.6% on an annualized basis from 4.7% the previous month.

As for the potential reaction of the Euro-Dollar to these figures, bad news should in principle reinforce expectations of a slowdown in Fed rate hikes, which would be negative for the dollar and a positive for EUR/USD.

Conversely, a stronger-than-expected NFP report could strengthen the dollar, although this is unlikely to be enough to really challenge the prospect of a Fed pivot in December.

EUR/USD has now retraced more than half of the 2022 decline

From a technical perspective, the EUR/USD has now broken above the 200-day moving average (1.0366), which the currency pair has struggled to maintain since the first test in mid-November.

Furthermore, the Euro-Dollar has now retraced more than 50% of the 2022 downtrend seen between February 10 and September 28.

Finally, if the uptrend continues, the 1.06-1.0640 area, which has seen several bullish and bearish reversals in April, May and June, will be the next hurdle to consider.