- 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.
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