The euro-dollar pair continues to drift in a wide price range of 1.0110 – 1.0280, reacting to the rapidly changing news flow. And if in the first half of the week traders' attention was focused on geopolitical events, now market participants have switched to macroeconomic reporting.
For example, yesterday, dollar bulls reacted violently to the growth of the index of business activity in the services sector from ISM. The indicator jumped in July to 56.7 (against the forecast of a decline to 53). The index has consistently declined over the past three months, so its reversal pleasantly surprised the dollar bulls. In addition, yesterday, it became known that the volume of manufacturing orders in the US increased. In June, the indicator came out at 2.0%—this is the strongest increase in the indicator since July last year (while most analysts expected to see it at around 1.0%).
But yesterday's releases had only a short-term impact on the pair. The bears were able to update the weekly price low (1.0123), but at the same time, they could not go below the 1.0100 target—the minimum condition for the development of the downward trend. As soon as the downward momentum faded, buyers seized the initiative for the pair. However, they do not show much agility, trading in a narrow intraday range.
The market froze in anticipation of the key macroeconomic report of the week—the US non-farm payrolls report, which will be published at the start of the American session on Friday. This release is especially important now, when there is an active discussion in the expert community regarding the further pace of tightening of the Fed's monetary policy. Moreover, recently there have been rumors in the market that the Fed may cut interest rates in the second half of next year if the US economy finally slides into recession. Strong performance in the labor market will reduce concerns about this, specially since some Fed representatives have already managed to refute such assumptions.
For example, Richmond Fed President Thomas Barkin said yesterday that "fears of a recession are not at all in line with 300,000–400,000 monthly job growth and a 3.6% unemployment rate." Barkin's colleague, San Francisco Fed President Mary Daly, voiced a similar position. At the same time, she stressed that the markets are "getting ahead of themselves too much" when discussing the timing of the interest rate cut. Finally, St. Louis Fed President James Bullard announced that he would like the rate to rise to 3.75–4% this year.
In the context of these statements, tomorrow's release will be important. The non-farm payrolls report can significantly strengthen the position of the US currency throughout the market, including in pair with the euro. The "green color" of Friday's report will allow the EUR/USD bears to declare themselves again in order to fulfill the minimum condition to approach the level of 1.0100 and, if possible, push through this target.
Note that most experts are reserved in their forecasts. In their opinion, the unemployment rate in July will remain at around 3.6%. For four months in a row, this indicator came out at this level, and for four months in a row, experts expected a decline to 3.5%. This time the analysts gave up, predicting that the indicator would remain at the same level. If contrary to forecasts, unemployment still falls to 3.5%, then the dollar will receive significant support, despite a minimal shift (market psychology will rather play its role here).
The number of people employed in the non-agricultural sector should increase by 230,000 in July. In general, any increase above the 200,000 mark can be considered acceptable. However, this figure has not fallen below the 350,000 target level since November last year, so the predicted result may be disappointing. Although, there is a "but" here too: over the past three months, this component of the release has consistently exceeded forecast estimates. If tomorrow, the indicator goes into the "green zone," the dollar will receive additional support.
You will also need to pay attention to salaries. Average annualized hourly wages have been declining for the third month in a row and a similar negative trend is expected in July (down to 4.9%). For dollar bulls, it is important that this indicator stays at least at 5.0% (or higher).
Thus, before the publication of tomorrow's report, the EUR/USD pair will most likely trade within the range of 1.0110–1.0280. Non-farm payrolls can provoke increased volatility for the pair, "pushing" the price out of the indicated corridor. In anticipation of such an important macroeconomic report, it is risky to open any positions on the pair. It is advisable to make trading decisions based on the data: its "color" will determine the vector of price movement, at least in the short term.