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The euro extended its decline from earlier on Friday as the dollar strengthened broadly after the nonfarm payrolls report showed the U.S. economy added more jobs than expected in October. Even though data initially boosted stocks and other risky assets, the rally lost steam quite quickly as investors assess the Fed's QE strategy response to the positive labor report.

With the economic calendar clear for the rest of the day, FX crosses will likely remain in consolidation mode in the absence of European headlines as liquidity declines ahead of the U.S. Presidential elections.

"The lasting impact from today's data may be dampened somewhat by proximity of the U.S. elections (and subsequent budget negotiations), while growth could clearly lose some momentum, at least temporarily, as the economic impact of Hurricane Sandy hits home," says the Wells Fargo team. "Even with these qualifiers, however, our near-term bias is for some weakness in the yen and euro, and strength in most commodity and emerging currencies."

Euro Falls To Test 200-Day SMA, Key Support

The euro continued to lose ground versus the dollar amid persistent doubts about the continuation of the Greek bailout. EUR/USD dropped over 100 pips throughout the day, hitting a low of 1.2835 and turning the immediate outlook pretty negative. The EUR/USD was last down 0.7% at 1.2845.

A break below the 200-day SMA around 1.2835 would mount pressure on the cross, while loss of 1.2800 could define a longer-term direction, since that support has held for over two months. However, if the moving average proves strong enough to contain the dip, it will provide relief to the cross and the euro could return to 1.2900, and even 1.3000 at the beginning of next week.

Karen Jones, analyst at Commerzbank, notes that short-term technical studies would be hinting an upside ahead, probably targeting the area at 1.3025/45 and 1.3122 in the near term. She expects "failure here and remain negative -- attention remains on the 1.2803/32 (200-day MA and October low). Failure here would be viewed as negative, and target 1.2472/33."

How Presidential Elections Could Affect The USD?

Looking ahead, the U.S. Presidential elections could affect financial assets. In this regard, the Danske Bank team argues that in the short term, the probability of a smooth disarming of the fiscal cliff is seen as essential for risk markets. "A split congress is the most likely outcome (Base case: Barack Obama wins with a split congress. Risk 2 case: Mitt Romney wins with a split congress) and the outcome that would be a key near-term challenge for risk markets and supportive of government bonds and the USD."

However, besides the fiscal cliff, there are many unanswered questions for investors when it comes to the medium-term consequences of the U.S. elections, including monetary policy and regulation policies, that could bring some volatility for the USD.

Source: USD Strengthens After NFP, But Election Impact Still Unknown