The euro-dollar pair tried this week to get close to the level of parity, which now serves as a key price barrier. Taking advantage of the weakness of the greenback, buyers of EUR/USD organized a fairly large-scale corrective growth, rising by 400 points over the week. And yet the 1.0000 mark turned out to be too much for them: as soon as they approached this target, sellers entered the game, which extinguished the upward impulse. However, the success of the bears also leaves much to be desired. They were unable to return the pair to the previous price echelon, in the area of 95–96 figures. As a result, the price got stuck in the flat while waiting for the publication of the main macroeconomic report of the current week.
Naturally, we are talking about non-farm payrolls, which will be made public tomorrow, on the last trading day of the week. The US labor market may become an ally of the greenback, but the opposite is not excluded. Pay attention to how sharply investors are now reacting to US macro statistics. After the disappointing report on the growth of the ISM manufacturing PMI on Monday, the dollar weakened its positions against a basket of major currencies, while the stock market showed positive dynamics. And vice versa—after yesterday's publication of ISM services PMI (which, in turn, showed a good result, being in the "green zone"), dollar bulls showed character, demonstrating a "mini-rally."
This is due to rumors that the Fed will resort to a moderate pace of tightening monetary policy at subsequent meetings. First of all, we are talking about the November meeting. After the publication of the failed report on Monday, the probability of a 75-point increase at the next meeting decreased to 50%, according to the CME Group's FedWatch Tool. The stock market reacted positively to this fact, while the dollar was under pressure. However, the subsequent release (ISM services PMI), which exceeded the expectations of experts, returned to traders the confidence that the regulator would still decide to increase the rate by 75 points. The report from ADP, which we will discuss below, also played its role. The combination of these factors has led to the fact that today the probability of implementing a 75-point scenario is estimated at almost 69%.
Obviously, non-farm payrolls can tip the scales in one direction or another.
According to preliminary forecasts, the September data on the labor market will support the US currency. In particular, the unemployment rate should fall to 3.6%, while the average hourly wage should increase by 0.4% MoM and 5.3% YoY. If salary figures go into the green zone, investors' inflation expectations will increase again. The energy crisis, geopolitical tensions, and rising average wages are the factors that will cause the inflation spiral to unwind more and more. The headline non-farm payroll should also come out relatively well, reflecting the creation of nearly 300,000 jobs in September. In the manufacturing sector, as well as in the private sector, indicators should similarly demonstrate positive dynamics.
Here it is necessary to refer to the ADP report from yesterday. According to their data, the US economy has created 208,000 jobs in the private sector against a forecast of growth of 200,000. The ADP report, as you know, is a kind of "petrel" in anticipation of the release of official data. Therefore, this component of non-farm payrolls may also enter the "green zone" tomorrow. By the way, yesterday's report allowed not only the greenback to restore its positions. Yields on 10-year Treasuries also rose by more than 2% to over 3.7% after falling sharply on Monday.
Thus, the report on non-farm payrolls tomorrow will either strengthen the position of the US currency (if they exceed the expectations of most experts), or weaken the greenback across the market if all components of the release come out in the "red zone." Of course, in the current situation, inflation reports look much more important – for example, next week the consumer price index will be published in the United States, which will provoke strong volatility among dollar pairs. However, it is also not worth downplaying the importance of non-farm payrolls, especially the "salary component" of the report.
Given this disposition, it is best to take a wait-and-see attitude for the EUR/USD pair. Failed non-farm data will allow buyers to swing at the level of parity again, overcoming which will help them develop further corrective growth. However, there is an alternative option, according to which the EUR/USD bears will return to the support level of 0.9760 (the Tenkan-sen line on the D1 timeframe). In such conditions, it is best to stay out of the market, at least until tomorrow's report.