NFP in Focus: Jobs Data to Shape Upcoming Rate Cut Size
EUR/USD Bulls Take a Breather; Key Support at 1.1000 in Focus
The dollar made significant gains last week, bolstered by the PCE Price Index which came out in line with expectations, showing that the inflation threat is steadily going away. A consumer spending report released Friday added to the positive sentiment, showing that people are not fearing a recession and that they spent more than last month.
This week all eyes will be on the jobs data scheduled for Friday but it looks like the rate cut itself will not be affected by the jobs numbers. Instead, the size of the cut may be in question. If job creation disappoints, it could show that the U.S. economy is on the precipice of a recession and this could make the case for a bigger rate cut (or a faster cycle).
At the time of writing, the CME FedWatch tool shows there’s a 69% probability of a 25-bps cut and a 31% probability of a 50-bps cut. The next FOMC meeting is on September 18 so there’s enough time for the Fed to digest the impact of the upcoming NFP report.
Economic Calendar Highlights
Today U.S. banks are closed in celebration of Labor Day so there will be no economic releases and volatility may be thin.
Tuesday’s highlight will be the release of the ISM Manufacturing PMI, which is a survey that asks the opinions of about 300 purchasing managers about the overall level of business conditions in the Manufacturing sector. The release is scheduled at 2:00 pm GMT.
Thursday at 12:15 pm GMT we will take a look at the ADP Non-Farm Employment Change report, which is a privately issued report that tries to mimic the NFP that will be released 2 days later. The ISM Services PMI will be also released on Thursday, at 2:00 pm GMT.
The main event of the week is scheduled for Friday at 12:30 pm GMT: the Non-Farm Payrolls. This is the most important job report in the U.S., with implications regarding the rate cut size. The expected number is 164K, up from last month’s 114K.
At the same time, the Unemployment Rate and the Average Hourly Earnings come out. The former is expected to go down, while the latter is expected to go up. If the numbers for all three indicators come out in line with the forecast, it would show a solid U.S. economy and would make a strong case for a small rate trim.
Technical Outlook – EUR/USD
After the massive climb that took the pair just above 1.1175 resistance, the USD bulls have stepped in and managed to create a strong pullback. This was helped by the overbought RSI and economic data that came out last week.
Although currently the price is in a retracement, the main bias remains bullish. With that being said, we may see a resumption of bullish movement after or if the price reaches 1.1000 support. The 50-day MA will climb and will probably be very close to 1.1000 when the pair reaches that zone, so it will create extra pressure.
Of course, we can expect to see the biggest movement on Friday when the jobs data come out but beware of false moves because sometimes these numbers are misinterpreted by traders.
