FX.co ★ EUR/USD. August Nonfarm Payrolls disappoints. Is the glass half empty?

The data on the US labor market released on Friday disappointed traders, although not all components of the data went into the "red zone". The nonfarm payrolls report simply ceased to be "exemplary," and this fact was enough for the dollar to weaken its positions throughout the market. The American currency was not saved either by wages (which increased both in annual and monthly terms), or unemployment, which fell to 5.2%, having updated the annual minimum. Market participants focused their attention on the headline indicator, which really disappointed, being three times lower than the forecast level. However, first things first.

The growth rate in the number of people employed in the non-agricultural sector has grown consistently over the four months since mid-spring. In April, the American economy "issued" 278,000 new jobs, 580,000 in May, 938,000 in June (the June indicator was revised upward from the previous value of 850 thousand), and just over one million in July (the July indicator was also revised upwards from the original value of 943,000). However, in August the indicator fell sharply: while the forecast of growth was up to 720,000, it increased only to 235,000. In the private sector of the economy, the indicator came out at almost the same level at 243,000 with the forecast of growth to 665,000. By the way, in this case, we can note the correlation with the report from the ADP agency, whose specialists announced an increase in the number of people employed in the private sector by 370,000 (with a growth forecast of 640,000).

In other words, this part of the release turned out to be a frank failure. These weak results (relative to previous months and relative to preliminary forecasts) reflect the consequences of a new wave of coronavirus incidence in the United States. Now it has become obvious that the summer COVID outbreak has not passed without a trace - it has an extremely negative impact on the pace of recovery of the labor market.

It is noteworthy that the unemployment rate came out in line with the forecasts, reaching 5.2%. This is the best result since April last year. But recall that this indicator is a lagging economic indicator, therefore, by and large, Friday's numbers reflected rather the July dynamics. Investors were also pleased with the salaries. Average hourly wages jumped 0.6% MoM last month and 4.3% YoY. In this case, we are dealing with multi-month records, thanks to which the inflationary spiral will unwind more and more. At least the inflationary expectations of investors will now rise in many ways. The indicator of the growth in the number of employed in the manufacturing sector of the economy also came out in the green zone. According to preliminary forecasts, the indicator in August was supposed to reach the 25,000 mark (in July, the 50,000 growth was recorded). But this figure increased by 37,000 in August.

Strong wage indicators and a decline in the unemployment rate partially offset the negative from the weak growth in the number of people employed in the non-agricultural sector. An especially important role in this aspect was played by wages, which allow counting on further inflation growth (let me remind you that the first signs of a slowdown in the CPI were recorded last month).

And yet, despite the positive aspects of Friday's data, in general, nonfarm payrolls report were not in favor of the dollar. Quite good data on salaries kept the greenback from dumping across the entire market - in particular, in a pair with the European currency, the dollar kept within the 18th price level, although the buyers of EUR/USD clearly intended to enter the area of the 19th figure. Most likely, traders will make another attempt to storm the 1.1900 target next week. In other words, the nonfarm data will not pass without a trace for the American currency. Indeed, by and large, the Federal Reserve has de facto received good reasons for maintaining a wait-and-see position, at least in the context of the next meetings. Members of the American regulator may not be in a hurry to start curtailing QE, postponing this decision until November or even December (there will be no meeting of the Federal Reserve in October).

Thus, Jerome Powell's indecisive rhetoric, the first signs of a slowdown in inflation, the controversial August nonfarm payrolls - all these factors will contribute to the pressure on the greenback in the coming days. A reversal of the pair is possible only following the results of the September meeting of the ECB (next Thursday, September 9). The European Central Bank could also neutralize the hawkish sentiment that now supports the single currency. But it's too early to talk about it. At the moment, there is every reason for the continued growth of the EUR/USD pair with the main target of 1.1950 (the middle line of the Bollinger Bands indicator, which coincides with the Kijun-sen line on the weekly chart).