When the head of the White House, Donald Trump, praised the US labor market, noting a decline in unemployment to 3.5% (the lowest level in the last fifty years), he apparently forgot to talk about production problems. In September, the number of jobs in this sector of the US economy decreased by 2 thousand, and only 41 thousand were created in the nine months of this year, while in the same period in 2018 - 188 thousand. The growth of Non-Farm Payrolls by 136 thousand last month was below the average for the previous twelve months (177 thousand). It is obvious that the US economy is slowing down, however, as long as employment in the country grows faster than the population, unemployment may decline further. This circumstance allows us to hope that the United States will nevertheless be able to avoid a recession.
According to Federal Reserve Chairman Jerome Powell, the regulator's main task is to extend the expansion of national GDP. During his Friday speech, he once again emphasized that the US economy is still in good shape, although it is faced with headwinds. A similar view is held by the Vice Chairman of the Federal Reserve, Richard Clarida. He noted that the central bank does not follow a predetermined course and will act accordingly, given the slowdown in global economic growth. FOMC hawks - presidents of the Federal Reserve Bank of Boston, Cleveland and Kansas City (Eric Rosengren, Loretta Mester and Esther George) - believe that the regulator will make decisions based on incoming data.
After the release of the September report on the US labor market in the United States and the speeches of several representatives of the US central bank, the chances of reducing the federal funds rate by 25 basis points in October fell from 88% to 80%, but the likelihood of such a move is still high. Recall that a week ago it was 40-50%.
The wide potential for easing the Fed's monetary policy, the euro sellers playing a trump card such as the expectation of the European QE's revival, as well as weak statistics on business activity in the United States, support the bulls in EUR/USD. At the same time, politics is on the side of the bears. The Global Political Risk Index literally floats in the clouds, spurring demand for defensive assets.
In this regard, news from the trade front, as well as about the course of negotiations between London and Brussels on the terms of Brexit should cause more interest than the publication of the minutes of the September meetings of the FOMC and the Governing Council of the ECB.
Analysts are not too optimistic about the outcome of the visit to Washington of the China chief negotiator, Vice Premier Liu He, scheduled for October 10. They recommend that the market prepare for the introduction in mid-October of the previously announced US new duties on Chinese imports. According to analysts, the hype around the impeachment procedure of Donald Trump will not contribute to the deal. Specialists at Pacific Investment Management Co. predict that China is unlikely to make serious concessions given the weakening position of the US president.
In addition, in the middle of October, a new front may appear in the trade war. The WTO has completed an investigation into a possible Airbus subsidy and has given the US a green light to raise duties on EU goods worth $7.5 billion. Europe is expected to respond to US tariffs.
Meanwhile, the fate of Brexit, to which less than four weeks remain, remains uncertain.
UK Prime Minister Boris Johnson's proposals on Brexit at first glance had a greater chance of gaining approval in the EU and wider support in the national Parliament than the initiatives of his predecessor Theresa May. However, the EU needs additional details - this was made clear in Brussels, and indeed in Britain itself. Although B. Johnson managed to win Eurosceptics to his side, the voices of the opposition, including the Labour Party, remain unattainable for him. It seems that everything is going to the next Brexit postponement, which they are already beginning to put up with on the continent, but B. Johnson promised to close all issues on October 31.
The day before, the British prime minister confirmed his readiness to withdraw the country from the EU at the previously indicated time.
"We will pack our bags and prepare for the exit by October 31. The only question is whether the EU will meet us with a mutually acceptable deal or will we be forced to leave like that," said B. Johnson.
Thus, the British prime minister is trying to put pressure on Brussels, convincing it to agree with London's latest proposals for Brexit.
According to The Times, the EU provided B. Johnson with one week to make the Brexit plan acceptable. Otherwise, the EU will refuse to discuss it at the summit to be held on October 17-18.
It is unlikely that the British prime minister will be able to come up with a breakthrough by the end of this week. This will mean only one thing - the "hard" exit of the UK from the EU at the end of this month and, accordingly, the weakening of the pound.
Analysts warn that if this scenario is realized, not only the British currency, but also the euro will be hit.
"If the United Kingdom and the EU fail to make a deal before the end of this month, shares on both sides of the English Channel will collapse, and with them the euro," said Markus Schomer, chief economist at PineBridge Investments.
"In the case of Brexit, without agreement, the single European currency may again plunge to around $1.05, and after the initial shock, the euro risks continuing to collapse," predicts UBS strategist Bhanu Baweja.
Neither the September US labor market report nor Friday's speech by Fed Chairman Jerome Powell clarified the medium-term prospects for EUR/USD. The main currency pair is waiting for news from Washington, London and Brussels. The bulls still expect to storm the resistance at 1.10 in order to advance the quotes to 1.104-1.105. However, the fall of EUR/USD below 1,096-1,0965 may disrupt their plans.