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The euro extended its recent rally against the dollar toward a fresh 2-week high on Friday, after the U.S. unemployment rate fell to its lowest level in 3 years in September, while job gains came in line with expectations.

Stocks in Europe and the U.S. also rose in the wake of the non-farm payrolls report. Even though the U.S. economy added 114,000 jobs in September, the unemployment rate declined to 7.8%, while July and August gains were revised higher by a combined 86,000, the bottom line is that the data is still too weak for the Fed to even consider ending unconventional measures. Hence, better U.S. data hurts rather than helps the dollar at this point.

Meanwhile, Spain is taking a breather from all the attention it has been getting these days, although investors continue to wonder whether and when Madrid will request a formal EU bailout that would trigger ECB bond-buying program.

Euro extends rally on payrolls data, September high eyed

The euro extended its rally into a second day on Friday, propelled by ECB President Draghi on Thursday and fueled by positive U.S. jobs data today. EUR/USD has reached a 2-week high of 1.3070 so far and it was last up 0.4% at 1.3065.

While the near-term outlook remains bullish, the pair could lack momentum to regain the 1.3100 mark just yet as indicators are reaching overbought levels in 1- and 4-hour charts. However, should EUR/USD break above 1.3100, the 1.3170 September double top will the next bullish target.

Regarding today's data and the USD, the Wells Fargo analyst team, notes that today's U.S. data is positive for risk sentiment and mostly negative for the dollar, "although we would prefer to express that dollar view via commodity and emerging currencies, rather than other core major currencies."

Chris Walker, researcher at UBS, confirms the outlook for 1m at 1.30 and 3m at 1.35 while maintains the actual bullish outlook on the cross commenting, "the trending/momentum indicators are pointing higher. The risk is for a test of the important resistance at 1.3172. Support lies at 1.2878/04". In the same direction, Karen Jones, Head of FICC Technical Analysis at Commerzbank, remarks that today's close is very important adding "should a recovery through 1.3050 be seen we will have to allow for a retest of 1.3173/77".

From a longer view, the Goldman Sachs analyst team notes that USD downside pressures appear to be increasing again after the recent Fed announcement of QE3 in combination with a significant shift in communication. "But Dollar weakness will not come in isolation. Our analysis indicates that the short term-response to QE also needs to coincide with a favourable shift in interest rate differentials and a decline in risk sentiment," they explain. "While not our base scenario, it is possible that remaining macro-economic and geopolitical risks lead to temporary Dollar strength despite QE." However, Goldman Sachs team thinks that looking further ahead, the QE depreciation pressure may intensify further if the Fed embarks on a path of increasingly explicit commitments to keep monetary policy accommodative for a long time.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.