FX.co ★ EUR/USD. Whose side was the Nonfarm Payrolls data on?

Can we say that the Nonfarm Payrolls data was on the US dollar's side? Judging by the initial market reaction, it seemed so. Despite some flaws, the data provided support upon its release. The US Dollar Index surged to 106.63, and the EUR/USD pair returned to the range of the 1.04 handle. However, this was the immediate reaction to the data. Considering the subsequent price dynamics, it became clear that traders were not inclined to only focus on the strong aspects of the jobs data while ignoring negative signals for the greenback. EUR/USD bears initially stopped the corrective move and tried to counterattack (the pair once again dipped below the 1.0500 level). However, the pair returned to its previous positions. Therefore, we came to the conclusion that it was better not to trust the downward momentum. The fundamental basis for a downward move would have been unreliable.

Let's start with the fact that as a result of the jobs data, hawkish expectations regarding the Federal Reserve's future course of actions have decreased. At least in the near term, the market does not expect another rate hike. According to the CME FedWatch Tool, there's only a 20% probability of an interest rate hike at the November meeting. It seems that the market is placing hopes on December, where the probability of a rate hike is slightly above 40%.

However, reduced hawkish expectations regarding November is one of the signals indicating the uncertainty of bearish prospects for EUR/USD. I'll repeat: September's Nonfarm Payrolls have too many flaws for such an upbeat initial reaction by the dollar bulls.

For instance, the unemployment rate in the US remained unchanged at 3.8% in September, against estimates of a fall to 3.7%. In fact, unemployment is at its highest level since March 2022. In addition, the wage indicator did not help. The average hourly earnings came in at 4.2% against a forecast of 4.3%. This indicator has been falling for the second consecutive month (and it has also been in the red zone for the second straight month). In September, wages grew at the slowest pace since August 2021. The decline in the inflation indicator is a serious blow to the greenback, especially against the backdrop of the drop in the core PCE index (which, I remind you, fell to 3.9%).

But the dollar bulls initially focused on the bright side. In particular, the number of nonfarm payrolls increased by 336,000 in September, surpassing the forecast of 170,000. According to revised data, the indicator increased by 227,000 in August, not 187,000 as previously announced. The indicator has been showing an upward trend for the third consecutive month: the September result was the strongest since January (when over 400,000 jobs were created). The number of jobs in the private sector of the economy increased by 263,000 last month, exceeding the forecast of 160,000.

In other words, dollar bulls were pleased with the fact that the number of employed people had increased. The number of jobs in September soared twice as much as forecasted. This fact is notable in part because the ADP report was remarkably disappointing. According to the agency, the number of jobs in the private sector only increased by 89,000. As we can see, ADP's figures and the official figures do not always correlate.

The average workweek remained at 34.4 hours (the same level as in August), and the labor force participation rate stayed at 62.8%. On one hand, this is the strongest result since February 2020, but on the other hand, the rate entered the red zone because experts expected it to be slightly higher at 62.9%.

Overall, September's Nonfarm Payrolls data was multifaceted, allowing for interpretation depending on what one wishes to see. On one side of the scale, there's the "red hue" of unemployment and the decrease in the annual inflation of wages, measured by the change in average hourly earnings. On the other side of the scale, there's the substantial increase in the number of people employed in September and the revision of corresponding indicators (in the upward direction) for August.

So, whose side was the mixed Nonfarm Payrolls data on? In my opinion, the jobs data will ultimately put pressure on the US dollar because, in effect, it reduced the likelihood of an interest rate hike at the Fed's November meeting. The initial reaction of traders (in favor of the greenback) was due to the increase in the number of employed (in light of the disappointing ADP report). However, in a strategic context, this report is more likely against the dollar than in favor of it. The decrease in the inflation indicator requires a cautious view of the bearish price movement in EUR/USD.

Therefore, it is risky to open short positions on the pair: there is a good chance that the bears will not be able to settle in the 1.04 range. After that, buyers may take the initiative and counterattack with 1.0605 as the initial target (the middle line of the Bollinger Bands indicator on the daily chart).