NFP Disappoints as U.S. Jobs Situation Becomes Critical
EUR/USD Bulls Rejoice over Multiple Rate Cut Prospects
Friday’s Non-Farm Payrolls (NFP) report stunned traders, showing that fewer than expected jobs were created during the previous month, and fuelling rate cut speculation. Only 22K jobs were created, while the anticipated number was 75K, and the previous was 79K.
According to the CME FedWatch tool, a 25-bps rate cut in September is almost fully priced in, at 99% probability; also, the chances of another 25-bps cut in October increased to 61.4% immediately after the NFP release.
The dollar weakened, as expected, allowing EUR/USD to climb to 1.1760 from 1.1690 before the release. The US Dollar Index (DXY) dropped from 98 to 97.45 after the jobs data hit the market. Both the EUR/USD and DXY retreated after the initial move.
The week ahead is sprinkled with key inflation data for the U.S. economy, which could further alter the Fed’s stance on the interest rate and affect the USD charts.
Economic Calendar Highlights
The first 2 days of the week are slow in terms of economic releases, but the action picks up strongly on Wednesday with the release of the U.S. Producer Price Index (PPI), scheduled for 12:30 pm GMT. The last release of the PPI sent shockwaves throughout the markets, both legacy and digital, so we can expect this release to have a similar impact. The PPI has inflationary implications because a higher producer price usually translates into a higher consumer price.
The European Central Bank (ECB) will announce the interest rate on Thursday at 12:15 pm GMT, and ECB President Christine Lagarde will hold the usual press conference at 12:45 pm GMT. In between these 2 events, the U.S. CPI and Core CPI will be released at 12:30 pm GMT. It is the main gauge of inflation in the United States and is closely watched by the Fed when deciding where to set the interest rate. This release will be especially important since it is the last one before the Fed meeting in September.
The last event of the week will be the release of the Prelim UoM Consumer Sentiment and Prelim UoM Inflation Expectations, both scheduled for Friday at 2:00 pm GMT. These are surveys conducted by the University of Michigan on a sample of about 420 consumers, and the impact is usually medium.
Technical Outlook – EUR/USD
The pair broke through the resistance at 1.1700 and through the bearish trend line drawn from the July 2 top. This is a bullish sign and indicates that the dollar is in for a rough ride.
The RSI is still choppy, but it started to rise on Friday. The pair’s next move looks to be a push towards the 1.1800 top, and a break of this key level will probably bring in more buyers, thus renewing the uptrend. If sellers suddenly come in, the first level of interest is 1.1700, followed by the bottom of the recent range, at 1.1600.
