NFP Surprises with a 336K Surge. Eyes on Upcoming CPI Data
Chart Talk: Is EUR/USD Poised for a Bullish Turn?
The Non-Farm Payrolls (NFP) report showed that jobs in September increased almost double what the economists had predicted, soaring by 336K while the forecast was 171K. The sizzling hot report ignited a rally on Wall Street and brought new questions about the path that the Fed will choose going forward.
Friday’s jobs data also fueled speculation that the interest rate will stay higher for longer. At the same time, it increased the importance of this week’s Consumer Price Index (CPI).
The turmoil in the Middle East sent oil prices higher and generated a dip in U.S. stocks, while the safe-haven USD gained on Monday morning.
As of this writing, Fed fund futures indicate a 79% probability that rates will remain unchanged at the next FOMC meeting, with the remaining 21% suggesting a 25-bps hike. The data was provided by CME’s FedWatch tool.
Key Data for the Week Ahead
The first two days of the week will lack major economic data. Volatility may be irregular Monday, as the U.S. banks are closed in observance of Columbus Day.
The action picks up Wednesday with the release of the PPI and Core PPI at 12:30 pm GMT. The Producer Price Index (PPI) shows changes in the price that producers charge for their goods and services and has inflationary implications.
Later in the day, at 6:00 pm GMT, the FOMC will release the Minutes of their latest Meeting. The document offers insights into the reasons that determined the latest rate vote, but more importantly, it can offer clues about the Fed’s next move.
Thursday will be the most important day of the week because it’s the day the Consumer Price Index (CPI) comes out. This is the main gauge of inflation in the U.S. and can have a huge impact on the US dollar. The Core CPI is expected to remain unchanged at 0.3%, while the CPI is expected to show a 0.3% change, lower than the previous 0.6%. The time of release is 12:30 pm GMT.
ECB President Christine Lagarde will speak Friday at 1:00 pm GMT at the World Bank Group and the International Monetary Fund Annual Meeting, in Morocco. It’s unclear how the speech will affect the Euro but volatility may be affected.
The final release of the week will be the UoM Prelim Consumer Sentiment survey, scheduled at 2:00 pm GMT. Confidence among consumers is an indicator of future consumer spending, which represents a major part of the entire economic activity, hence the importance of this survey.
Technical Outlook – EUR/USD
The key talking point is the support at 1.0500, which was breached last week but the bears failed to keep the price below it. The RSI is already oversold and showing bullish divergence, and a bounce is underway.
The pair spent a long period of time moving south without a proper retracement, which increases the chances of a stronger move up this time. The initial reaction after Friday’s NFP release was a move down, which pierced 1.500 again, but it was followed by a swift reversal.
This could be an indication that the bulls will take over, creating a stronger rally (possibly into the bearish trend line). The FOMC Minutes and the inflation data that come out throughout the week will certainly influence the movement of USD pairs.
