EUR/USD is pushed to the edge of the abyss ahead of NFP

EUR/USD has been offered on the day and remains on the back foot into the final hour of trade in the North American forex session. At the time of writing, the single unit is down over 1% at 0.9947 and has fallen from a high of 1.0054 to a low of 0.9910 so far on the day.  

Global quities and bonds continued to decline as hawkish central bank rhetoric and a shutdown in China further roiled investor jitters, supporting the US dollar. Pessimism on the news that Chengdu has become the latest Chinese city to be locked down as Beijing continues to pursue its controversial "zero-Covid" policy weighed on risk sentiment. Beijing's drive to ensure "zero Covid" has been accused of stifling economic growth and this has added to worries over high inflation and interest rate hikes.

As for domestic data,  the EU manufacturing PMI slipped further below the breakeven point to a 26-year low in August, with similar declines in Spain, Italy, and Germany. However, other data showed that the EU Unemployment rate declined slightly in July. Meanwhile, the European Central Bank is still expected to raise rates by at least 50 basis points, and perhaps more, at its next meeting on Sept. 9. Nevertheless, that has done little to support the single currency of late. 

In the US, in the countdown to the US Nonfarm Payrolls data, the highlights of Thursday's busy data schedule were an unchanged reading in the ISM's Manufacturing report for August, a decline in Initial Jobless claims and a drop in the monthly layoff intention totals from Challenger.

 The ISM manufacturing index held steady at 52.8 in August, with higher readings for new orders and employment and lower readings for production and prices, though all still indicated expansion. The initial and continuing claims levels continued to rise in August, but at a slower pace than in previous months. Initial jobless claims decreased by 5,000 to 232,000 in week ended Aug. 27, a third straight decline that lowered the four-week moving average by 4,000. Insured claims rose by 26,000 to 1.438 million in the week ended Aug. 20.

As for growth expectations in the US, the Atlanta Fed GDP nowcast estimate for third-quarter growth has been revised up to 2.6% from the 1.6% pace in the previous calculation on Aug. 26. The next update is scheduled for Sept. 7.

For the showdown this week, as one of the most pivotal before the September FOMC meeting, the August Nonfarm payrolls report will be out on Friday. This data could be the tipping point that will cement a 75bps hike from the Fed should the number of new jobs beat the 300k consensus estimate.

NFP expectations

The jobless rate is projected to remain unchanged at 3.5% while the labour participation rate is seen ticking up to 62.2% from 62.1% the month prior. Average hourly earnings are expected to increase by 0.4% in August after a 0.5% gain in July, but the year-over-year rate would rise to 5.3% from 5.2% in the previous month due to base effects. The average workweek is expected to remain at 34.6 hours.

''We look for payrolls to have continued to advance strongly in August (TD: 370k), but at a more moderate pace following the eye-popping July increase,'' analysts at TD Securities said. ''We look for the solid gain in employment to be reflected in another decline in the UE rate to 3.4%. We are also forecasting wage growth to slow modestly to a still robust 0.4% MoM.'' 

''We think the market is priced for a strong report, investors penciling in 69bp of hikes in September and a terminal rate of 3.98%. Markets are likely to react more to a weaker report.''