The EUR/USD pair wrapped up the trading week just below the 1.07 level. Towards the end of Friday's session, bears took the initiative and orchestrated a "mini bearish rally," pulling the price down to the 1.0776 level. Moreover, at the start of the U.S. session, the pair was edging closer to the 1.09 price level, reacting to mixed Non-Farm Payrolls data.
Experts have varying assessments of the August U.S. labor market data, but they agree that the report reduced the likelihood of a Federal Reserve rate hike in September. It's worth noting that the chances were already slim (around 20-25%, according to the CME FedWatch Tool) before the labor market data, but as of today, they are nearly zero (6%). Therefore, the euro's rise after the Non-Farms report was uncertain. As soon as the upward momentum started to wane (around the 1.0880 level), traders eagerly started to take profits, as they avoided leaving positions open over the weekend. The result was a swift decline.
However, one should not rely on such a rapid decline. The pair plummeted primarily on emotional grounds ahead of the weekend, whereas the greenback currently has no substantial reasons to sustain such a sharp growth.
Returning to the August Non-Farms, take note that its reading came in below the market expectation of 200,000 for the third consecutive month, indicating labor market stabilization. It's generally believed that to actively stimulate economic recovery, the labor market should add at least 200,000 jobs each month. In addition, the unemployment rate unexpectedly increased by 0.3% to 3.8% in August as more Americans entered the labor market in search of jobs. Average hourly wages, for the first time since February, displayed a downtrend.
In other words, the data confirms the assumption that the American economy is gradually losing its momentum. This does not contribute to a hawkish outlook regarding the Fed's future course of actions and, consequently, does not support a stronger greenback.
We can assume that there may be an upward retracement towards the 1.08 level on Monday, a range in which the pair has been trading since mid-August. Buyers and sellers seem to be trying to "tip the balance" by repeatedly challenging both the 9th and 7th figures. However, they constantly return to the "neutral territory."
The upcoming trading week is not particularly packed with significant events for EUR/USD. There are mostly secondary economic reports, which typically have limited impact on the pair. Nevertheless, several European Central Bank and Fed officials will be speaking during the upcoming week.
This is quite important at the moment, as it appears that EUR/USD traders are in need of an "interpretation" of all the latest reports. Among these conflicting reports are not only the Non-Farms mentioned earlier but also inflation data for the eurozone. The annual Eurozone Harmonised Index of Consumer Prices (HICP) rose 5.3% in August, at the same pace as seen in July, against expectations of a decline to 5.1%. The index had steadily decreased since October 2022, going from its peak of 10.6% to the current target of 5.3%. However, the downtrend has generally stalled in recent times. The core CPI, excluding energy and food prices, was on the rise until March, hitting 5.7%. It then gradually slowed down but remained in a certain range: it was at 5.3% in May, at 5.5% in June and July, and finally, the index returned to 5.3% in August.
This report can be interpreted in different ways. On one hand, the August result favors the euro as it suggests resilience in European inflation. On the other hand, inflation rates in August did not actually accelerate.
In the midst of this uncertainty, Fed and ECB officials can provoke increased volatility in the pair, especially considering that the central bank meetings in September are fast approaching (ECB on September 14th, Fed on September 20th).
So, on Monday, the ECB will have five members speaking - Frank Elderson, Joachim Nagel, Philip Lane, Fabio Panetta, and ECB President Christine Lagarde.
On Tuesday, ECB Vice President Luis de Guindos is expected to speak.
On Wednesday, we will hear from Fed representative Lael Brainard (who has voting rights in the Committee this year).
On Thursday, other Fed officials will also speak: Randal Quarles (who has voting rights), John Williams (who has voting rights), and Michelle Bowman (who has voting rights).
On Friday, Michael Barr is expected to speak (also with voting rights this year).
These central bank officials are unlikely to change market positions regarding the prospects of monetary tightening in September (both in Europe and the United States). As mentioned earlier, there is currently a 9% probability of a Fed rate hike this month, and the probability of ECB rate hikes is less than 30%. However, the long-term outlook remains uncertain. ECB and Fed officials may shed some light on this uncertainty by expressing their views on the prospects for rate hikes in upcoming meetings. This will either strengthen or weaken the positions of the bears or the bulls, causing the pair to either consolidate within the 7th figure or return to the range between 1.0850 and 1.0930.