EUR/USD. What does the June Nonfarm Payrolls report say?

The EUR/USD pair surged at the start of the US trading session on Friday, reacting to the release of key data in the US labor market. However, it cannot be said that the June Nonfarm Payrolls was a total disappointment: in fact, almost all components of the report were on the forecast level. However, the infamous "spoonful of tar" spoiled the initial impression of the release. In addition, the strong ADP report, which was published on the eve of the Nonfarm, also played a role. The corresponding expectations of traders were not met, as a result of which the greenback was under pressure across the market. Yet, the situation is ambiguous.

First of all, take note that we are dealing with a "storm in a teacup" – in the sense that all price fluctuations provoked by the Nonfarm are within the established price range at 1.0850-1.0930, within which the pair has been trading for the second week in a row. So on one hand, traders reacted quite sharply to the data, and the price rose impulsively. But on the other hand, the pair just bounced off the lower limit of the aforementioned range and tested the upper limit, trying to consolidate above the 1.0930 target. That's it. It is too early to talk about a radical breakthrough and victory for EUR/USD buyers – to do this, they need to overcome the 1.1010 resistance level (the upper line of the Bollinger Bands indicator on the daily chart).

The second point is that at the moment we are seeing more of an emotional response to the data rather than an objective one. The culprit is the aforementioned ADP report. No joke – according to the agency's calculations, the United States private sector employment rose by 497,000 in June (with a forecast of a rise of 226,000). Naturally, after such a splendid "preview," traders' appetites grew. And when traders found out that this component of the official report turned out to be in the "red", disappointment replaced optimism. One can say, the ADP report did a bearish favor to the dollar, heightening expectations that were subsequently not met.

However, all of this, as they say, is "small stuff." Emotions will subside by Monday, while overall, June's Nonfarm is not catastrophic, although some components of the report were in fact worse than expectations.

The unemployment rate slipped to 3.6% from 3.7% in May. This result matched the forecasts of most experts.

U.S. job growth cooled in June as employers added 209,000 jobs in June, compared to forecasts of 224,000. On the one hand, the indicator fell short of the forecasted value, but on the other hand, it de facto exceeded the 200,000 mark (as is known, the labor market is considered to be growing normally when it increases by at least 200,000 jobs each month).

Another component of the report also ended up in the red: private employment grew by 149,000 jobs in June, compared to forecasts of 200,000.

However, the inflation indicator was in the "green". This refers to the level of average hourly wage. Most experts predicted a drop in the indicator to 4.2% (in annual terms), but it remained at the May level (4.4%). The indicator has been at this level for three consecutive months.

As a result, the US dollar index came under pressure: the indicator updated a weekly low, falling to the base of the 102-figure. The main dollar pairs of the "major group" reacted accordingly, as it showed that the greenback had gotten weaker. The market focused on the relatively weak aspects of the data - but not in the context of the Fed's July meeting, but in the context of the possible further decisions of the US central bank. According to the CME FedWatch Tool, the probability of a rate hike in July is currently 92%. While the probability of maintaining the status quo in September has increased to 72% (previously - 65%). If the report had increased hawkish expectations regarding the possible outcomes of the September meeting, the dollar would have been "in the saddle". But the result was not a "breakthrough", which is why a second rate hike (apart from July's) is once again in question.

Now those who trade the dollar pair will focus on the next key release. This refers to the consumer price index, which will be published in the US next Wednesday (July 12). If inflation once again shows a downtrend (especially the core index), doubts about another rate hike in the "post-July" period will be further amplified.

Thus, the June Non-farm were unable to remove the intricate problem: there's a high chance that the upward momentum will fade as it approaches the boundaries of the 10th-figure (or when attempting to storm the barrier of 1.1010, which corresponds to the upper line of the Bollinger Bands on D1). As soon as buyers lock in profits, sellers are likely to take the initiative into their own hands and return the pair to the 1.0850-1.0930 range. The market will return to waiting mode - this time awaiting the inflation report.