Review of EUR/USD on September 9; Controversial Non-Farms and a New Threat to the Dollar

The EUR/USD pair showed a reasonably good decline on Friday, which might not have occurred. However, a miracle happens once a year, and the market buys the dollar when it might have done without. The reports on unemployment and the labor market did not provide a clear answer to the question: has the deterioration stopped? Although the unemployment rate dropped to 4.2%, the Non-Farm Payrolls count was again below forecasts, and the value for July was revised downward. Thus, we can confidently say that the situation in the labor market has not improved, and the Federal Reserve will lower the key rate in September with a 100% probability.

The question remains: by how much will the Fed lower the rate? For us, the answer is obvious: by 0.25%. We see no compelling reasons or grounds for a greater monetary policy easing. We do not believe that the Fed will dive headlong into easing, as this could stop inflation from falling. Nonetheless, the probability of a 0.5% rate cut also exists and could significantly increase next week.

On Wednesday in the U.S., the inflation report for August will be released, according to which the slowdown could be 0.3% on an annual basis. In other words, inflation may slow down to 2.6%. It's hard to say whether this forecast will be met, but if it is, the Fed will have grounds for three rate cuts by the end of the year. Recall that the European Central Bank began easing policy when inflation dropped to 2.4%. However, the rate in the Eurozone was initially much lower than in the U.S. Therefore, if inflation decreases according to forecasts, the Fed could conduct quite an aggressive easing by the end of the year.

Naturally, we will remain in our original opinion. Even if the Fed conducts easing at the fastest possible pace, the market has already accounted for this factor for two years and incorporated it into the dollar's rate. Therefore, in any case, we see no reason for the US dollar to fall further.

Attention should also be paid to the ECB, which is already scheduled to hold a meeting on Thursday, where a decision to ease monetary policy by another 0.25% is expected. However, the market, as usual, may ignore this event. In our opinion, the question is whether the market has fully processed the Fed's monetary easing yet. We can expect a sharp strengthening of the greenback when this moment comes. It is impossible to say exactly when the market will finish selling the dollar based on the Fed's monetary policy. However, it should be remembered that we are still experiencing a downward trend in the weekly time frame. On the weekly time frame, we are close to the upper boundary of the horizontal channel. We did not expect a new rise in the euro in recent months, but it essentially changes nothing. A decline in the euro in the long term is still more likely.

The average volatility of EUR/USD over the past five trading days as of September 9 is 55 pips, which is considered average. We expect the pair to move between the levels of 1.1030 and 1.1140 on Monday. The upper linear regression channel is directed upwards, but the global downward trend remains intact. The CCI indicator entered the overbought area three times, signaling a potential shift to a downtrend and highlighting how the rise is illogical. However, for now, we only see a minor correction.

The EUR/USD pair started to decline and should continue moving downward. In previous reviews, we mentioned that we only expect declines from the euro in the medium term, as any new rise would appear to be a mockery. There is a likelihood that the market has already priced in all future rate cuts by the Fed. If so, the dollar has no more reasons to fall. Short positions can be considered if the price consolidates below the moving average, with targets at 1.0986 and 1.0925. Last week's macroeconomic data significantly spoiled life for the dollar and, unfortunately, may continue to exert pressure on it in the future.

Linear Regression Channels: help determine the current trend. If both are directed in the same direction, it means the trend is strong at the moment.

Moving Average Line (settings 20,0, smoothed): defines the short-term trend and the direction in which trading should be conducted.

Murray Levels: target levels for movements and corrections.

Volatility Levels (red lines): the probable price channel in which the pair will spend the next 24 hours, based on current volatility indicators.

CCI Indicator: Entering the oversold area (below -250) or the overbought area (above +250) means a trend reversal in the opposite direction is approaching.