EUR/USD remains on the defensive below 1.0800 amid modest USD uptick, ahead of US NFP

• EUR/USD ticks lower on Friday and erodes a part of the overnight recovery gains.
• Rebounding US bond yields revive the USD demand and exert pressure on the pair.
• Fed rate cut bets could cap the buck and lend support ahead of the US NFP report.

The EUR/USD pair struggles to capitalize on the previous day's modest bounce from the vicinity of mid-1.0700s, or over a three-week low and trades with a mild negative bias on Friday. Spot prices remain depressed below the 1.0800 mark heading into the European session, though lack follow-through selling as traders keenly await the release of the closely-watched US monthly employment details.

The popularly known Nonfarm Payrolls (NFP) report will be looked upon for more cues that the historically tight labor market is loosening, which will reaffirm dovish Federal Reserve (Fed) expectations. Market participants now seem convinced that the US central bank is done with its policy-tightening campaign and are now pricing in a greater chance of a 25 bps rate cut as early as March 2024. Hence, the crucial data will play a key role in influencing the Fed's policy outlook, which, in turn, will drive the USD demand and provide some meaningful impetus to the EUR/USD pair.

In the run-up to the key data risk, a further recovery in the US Treasury bond yields assists the US Dollar (USD) to attract some buyers and stall the overnight pullback from a two-week high. This, along with the recent dovish rhetoric by European Central Bank (ECB) officials, is seen exerting some pressure on the EUR/USD pair. In fact, ECB board member Isabel Schnabel earlier this week said that further interest rate increases might no longer be necessary due to a significant decrease in inflation. This might continue to undermine the shared currency and cap the upside for the major.

From a technical perspective, the overnight failure near a technically significant 200-day Simple Moving Average (SMA) support breakpoint, now turned resistance, favours bearish traders. That said, it will be prudent to wait for a sustained break below the 100-day SMA, currently around the 1.0765-1.0760 area, before positioning for an extension of the EUR/USD pair's recent sharp pullback from the 1.1015 area, or the highest level since August touched last month. Nevertheless, spot prices remain on track to register losses for the second successive week.

Technical levels to watch