EUR/USD bears are in town, but face a wall of critical longterm support

The ECB and NFP will be the highlights as markets trade the central bank divergence theme.

EUR/USD is up slightly at the start of the week, trading 0.10% higher at the time of writing. The bulls are engaging at a critical support level on the charts, as illustrated below. Meanwhile, the dollar stays near a year-and-a-half high against the euro with equities markets volatility expected to underpin the greenback on a very busy schedule for the week ahead.

The markets will eye the upcoming Australian, UK and European central bank meetings as the key events while continuing to price the Federal reserve's hawkish dominance into the market. This has been supporting the dollar index (DXY), which measures the greenback against six major peers in the 97.00 areas. Friday's 18-month top of 97.441 was a critical milestone that has set the scene for the week ahead.

The greenback had its best week in seven months last week supported by investors seeking safety amid a sell-off in riskier assets. With the market pricing more than 90% chance of at least four rate hikes by the end of the year and a 67% chance of at least five, the greenback remains underpinned.

However, the data this week could rock the apple cart. US payroll figures are out on Friday. ''Consensus sees 150k jobs added vs. 199k in December, while the Unemployment Rate is seen steady at 3.9% and average hourly earnings are seen picking up to 5.2% YoY from 4.7% in December,'' analysts at Brown Brothers Harriman said.

Other key events for the US will include the ADP report that provides its private-sector jobs estimate Wednesday, with consensus at 200k vs. 807k in December.

The analysts also noted that the December JOLTS job openings will be reported Tuesday saying that 10.3 mln are expected and explained that this should help round out the labor market picture. ''Barring a complete collapse in the economy, the Fed is going on the assumption that we are nearing full employment and will continue to tighten until the data warrant a pause.''

Meanwhile, the European Central Bank also has a policy meeting Thursday. The central bank is on cruise control, at least for the first half of 2002, but analysts are starting to warn that approaching rate hikes from the Fed will shrink the ECB's window for action.

''The ECB is in cruise control for 2022H1, and we expect little change in messaging at this week's policy decision, especially as no new forecasts will be released,'' analysts at TD Securities explained.

''President Lagarde is likely to emphasise policy flexibility during the press conference, but re-iterate that a 2022 rate hike is highly unlikely. Views on energy prices and inflation expectations will be key,'' the analysts added.

EUR/USD technical analysis