|

EUR/USD Forecast: Euro bulls move to sidelines ahead of US jobs data

  • EUR/USD holds steady above 1.1100 after a two-day rally.
  • The bullish bias remains intact in the near term.
  • Nonfarm Payrolls in the US are forecast to rise 160,000 in August.

EUR/USD registered strong gains for the second consecutive day on Thursday before entering a consolidation phase above 1.1100 in the European session on Friday. Investors refrain from taking large positions while waiting for the US Bureau of Labor Statistics to release the August jobs report.

The data published by the Automatic Data Processing showed on Thursday that employment in the private sector rose 99,000 in August. This reading missed the market expectation of 145,000 by a wide margin and triggered another leg of US Dollar (USD) selloff.

Nonfarm Payrolls (NFP) in the US are forecast to rise 160,000 in August following July's disappointing increase of 114,000. In case this data comes in near 100,000, investors could lean toward a large September Federal Reserve (Fed) rate cut and force the USD to continue to weaken against its major rivals. According to the CME FedWatch Tool, markets are currently pricing in a 43% probability of a 50 basis points rate cut at the upcoming policy meeting.

On the other hand, a positive surprise in NFP, with a print close to 200,000, could help the USD rebound and cause EUR/USD to correct lower heading into the weekend.

EUR/USD Technical Analysis

The Relative Strength Index (RSI) indicator on the 4-hour chart stays slightly below 70, suggesting that EUR/USD has more room on the upside before turning technically overbought. On the upside, 1.1160 (static level) aligns as immediate resistance ahead of 1.1200 (end-point of the latest uptrend) and 1.1250 (static level from July 2023).

In case EUR/USD drops below 1.1100 (100-period Simple Moving Average (SMA), 50-period SMA, Fibonacci 23.6% retracement) and starts using this level as resistance, technical sellers could take action. In this scenario, 1.1040 (Fibonacci 38.2% retracement) could be seen as next support before 1.1000 (200-period SMA, Fibonacci 50% retracement).

Nonfarm Payrolls FAQs

Nonfarm Payrolls (NFP) are part of the US Bureau of Labor Statistics monthly jobs report. The Nonfarm Payrolls component specifically measures the change in the number of people employed in the US during the previous month, excluding the farming industry.

The Nonfarm Payrolls figure can influence the decisions of the Federal Reserve by providing a measure of how successfully the Fed is meeting its mandate of fostering full employment and 2% inflation. A relatively high NFP figure means more people are in employment, earning more money and therefore probably spending more. A relatively low Nonfarm Payrolls’ result, on the either hand, could mean people are struggling to find work. The Fed will typically raise interest rates to combat high inflation triggered by low unemployment, and lower them to stimulate a stagnant labor market.

Nonfarm Payrolls generally have a positive correlation with the US Dollar. This means when payrolls’ figures come out higher-than-expected the USD tends to rally and vice versa when they are lower. NFPs influence the US Dollar by virtue of their impact on inflation, monetary policy expectations and interest rates. A higher NFP usually means the Federal Reserve will be more tight in its monetary policy, supporting the USD.

Nonfarm Payrolls are generally negatively-correlated with the price of Gold. This means a higher-than-expected payrolls’ figure will have a depressing effect on the Gold price and vice versa. Higher NFP generally has a positive effect on the value of the USD, and like most major commodities Gold is priced in US Dollars. If the USD gains in value, therefore, it requires less Dollars to buy an ounce of Gold. Also, higher interest rates (typically helped higher NFPs) also lessen the attractiveness of Gold as an investment compared to staying in cash, where the money will at least earn interest.

Nonfarm Payrolls is only one component within a bigger jobs report and it can be overshadowed by the other components. At times, when NFP come out higher-than-forecast, but the Average Weekly Earnings is lower than expected, the market has ignored the potentially inflationary effect of the headline result and interpreted the fall in earnings as deflationary. The Participation Rate and the Average Weekly Hours components can also influence the market reaction, but only in seldom events like the “Great Resignation” or the Global Financial Crisis.

Author

Eren Sengezer

As an economist at heart, Eren Sengezer specializes in the assessment of the short-term and long-term impacts of macroeconomic data, central bank policies and political developments on financial assets.

More from Eren Sengezer
Share:

Editor's Picks

GBP/USD strengthens above 1.3350 ahead of US CPI data

The GBP/USD pair trades in positive territory around 1.3360 during the Asian trading hours on Tuesday. However, the potential upside for the major pair might be limited amid fears of an escalating US-Iran conflict. The US June Consumer Price Index inflation report will take center stage later on Tuesday. 


EUR/USD posts modest gains above 1.1350 as traders await US CPI inflation release

The EUR/USD pair posts modest gains near 1.1385 during the Asian trading hours on Tuesday. Nonetheless, the potential upside for the major pair might be limited amid renewed US military strikes against Iran. Traders will take more cues from the US June Consumer Price Index inflation data, which will be released later on Tuesday. 

Gold looks to US CPI and Warsh’s testimony for the next big move

Gold is recovering a part of the previous 3% slide to two-week lows near $3,985, back above the $4,000 level in Asia on Tuesday. Gold traders brace for intense volatility on the US Consumer Price Index data release, followed by Federal Reserve Chair Kevin Warsh’s testimony.  


Trump urges Senate to pass CLARITY Act as crypto bill nears crucial vote

US President Donald Trump on Monday urged the US Senate to swiftly pass the Digital Asset Market Clarity Act, following the death of Senator Lindsey Graham, who passed away unexpectedly over the weekend at age 71. "In honor of Senator Lindsey Graham, a big supporter, the US Senate should pass the CLARITY Act," Trump wrote in a Truth Social post.

Oil jumps, bonds break and the AI trade starts losing its shine

Wall Street finally ran into the collision course it had spent weeks pretending would never happen. Oil surged, bonds sold off, the dollar caught a bid, and the most crowded corner of the equity market began to buckle under its own weight.

Five sessions, one round trip: Why the whipsaw is exactly what Warsh ordered

Markets opened July with a December hike as the base case and spent five trading sessions unlearning and relearning it. A 57K payrolls print bled the tightening bets out of the strip; a re-shut Strait of Hormuz is pushing them back in. Wednesday's minutes from the June FOMC meeting landed mid-round-trip, describing a world that had already stopped existing.