The US labor market report for January confirms that risks for the EUR/USD are shifting slowly to the upside, according to the UBS analyst team. Key Quotes “It was certainly not a recession report: unemployment dropped below 5%, 151,000 new jobs were created, and weekly earnings rose 0.5% compared to December. The data therefore suggests that the USD should stay in overvalued territory for the time being.” “On the other hand, the report also does not suggest that the US is steaming ahead at an unstoppable pace. UBS lowered its forecast for Fed rate hikes this week and the report is exactly in line with our moderate expectations.” “We also think the report is fairly in line with our currency forecast. The labor market signals suggest that the downside in the EUR/USD is limited. An appreciation of the USD driving the EUR/USD to parity or even below would leave a mark on the US labor market. Nevertheless, the chances that the euro or the Japanese yen would depreciate against the USD over the next few months are still very high, in our view, and such developments remain our base case. A clear response by the Bank of Japan (BoJ) or the ECB is needed to ensure their depreciation against the USD. The weaker US labor market report and a softer tone of the Fed should provide a basis for an even easier ECB or BoJ policy.” “Ahead of the data release, the EUR/USD rose to the 1.12 stop-loss level of our opportunistic trading recommendation. With the stop-loss triggered, the trade is now closed with a small profit; the opening level was 1.15. From here on, we think the EUR/USD will trade within the 1.12–1.05 range and recommend using strategies that profit from such range trading.” For more information, read our latest forex news.