The US labor market weakened significantly in 2025 but began to recover in 2026. Perhaps the Fed’s preventive 75-basis-point rate cut played a role. Be that as it may, there is no point in continuing the cycle now. Let’s discuss this topic and make a trading plan for the EUR/USD pair.
The article covers the following subjects:
Major Takeaways
- Employment jumped by 130,000 in January.
- The chances of a Fed rate cut are falling.
- The FOMC doves are not giving up.
- Short trades on the EUR/USD pair can be opened on a breakout of 1.1835.
Weekly US Dollar Fundamental Forecast
January’s US labor market report was not just good, it was like a ray of light in the darkness. Employment rose by 130,000, exceeding forecasts by twice as much, while unemployment unexpectedly fell from 4.4% to 4.3%. Considering that in 2025 only 15,000 new jobs were created per month, the start of 2026 shows clear progress. However, will the Fed pay attention to a single data point? The market is skeptical, with the EUR/USD pair riding a roller coaster.
US Labor Market Statistics
Source: Bloomberg.
According to revised BLS data, employment grew by 1.5 million in 2024, rather than 2 million as previously estimated. In 2025, the figure increased by 181,000, not 584,000. Its average monthly growth rate was 15,000, rather than 49,000. This is the weakest growth since 2003, excluding recessions.
However, people only see what they want to see. Donald Trump focused exclusively on the January statistics. The president said that the US was once again a strong country and therefore should maintain low interest rates to save trillions of dollars and help balance the budget.
The problem is that strong employment data is becoming a key argument for Fed hawks. Kansas City Fed President Jeffrey Schmid noted that easing monetary policy in the current environment would lead to higher inflation. Interest rates should be kept high.
The futures market agrees with him. The chances of a rate cut in April fell from 42% to 22%, and in June from 75% to 58%. The market reduced the probability of two cuts in 2026 from 76% to 69%. US Treasury bond yields rose, and the EUR/USD pair slumped to the support level of 1.1835.
Market Expectations for Fed Rate Cut Timing
Source: Bloomberg.
Meanwhile, Fed doves are not going to throw in the towel. Fed governor Stephen Miran still believes that there are grounds for lowering the federal funds rate by increasing supply in the economy through deregulation. Bloomberg Economics maintains its forecast of four acts of monetary expansion in 2026 and expects inflation to slow down in the coming reports.
However, if the labor market has indeed stabilized, the Fed will keep borrowing costs high for a long time to come. The spread with ECB rates favors EUR/USD bears. US assets look more attractive than European ones, and money will flow from Europe to the US.
Weekly EURUSD Trading Plan
In such conditions, short positions on the main currency pair formed following the US labor market report for January could be increased if the price breaks through the support of 1.1835. Notably, EUR/USD bears failed to break through this level at first attempt. Will their second shot prove successful?
This forecast is based on the analysis of fundamental factors, including official statements from financial institutions and regulators, various geopolitical and economic developments, and statistical data. Historical market data are also considered.
Price chart of EURUSD in real time mode
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