Fed Faces Data Fog After Longest U.S. Shutdown Ends
EUR/USD Keeps on an Upwards Path Ahead of September’s NFP Release
The U.S. government resumed regular operations last week, and thus the longest shutdown in modern history came to an end. During the shutdown, markets were starved of information as no major data was released, most notably the inflation and jobs reports.
Due to the lack of information, the Fed’s view is skewed, and the next rate move is once again unclear. Markets were largely pricing in another 25-bps rate cut at the December meeting, but now a growing number of Fed policymakers lean towards holding the rates. The main reasons are growing inflation and relative stability in the labor market.
At the time of writing, the CME FedWatch tool shows a 44% probability of a rate cut in December, down from almost 67% a week ago. This week, the markets will start getting some of the old data, which was not released due to the shutdown, namely the Non-Farm Payrolls report for September. However, this is old data, and it may have a limited impact. The more important NFP will probably be the one for November, and will be released just before the FOMC’s December meeting.
Economic Calendar Highlights
The FOMC Meeting Minutes will be released on Wednesday at 7:00 pm GMT, providing insights into the economic conditions that influenced the members’ rate votes. The minutes can sometimes reveal what the Fed is looking for and what data will be the most important moving forward.
Thursday at 1:30 pm GMT, we will get the most important data since the government shutdown began: the Non-Farm Payrolls report for September. Inflation and jobs are the main things the Fed watches when setting the interest rate, so this release will generate volatility, but maybe not as much as usual, considering that it’s old data.
On Friday, we take a look at a few Purchasing Managers’ Indexes (PMI), starting with the German manufacturing and Services PMIs at 8:30 am GMT, continuing with the UK numbers at 9:30 am GMT, and finishing with the US PMIs at 2:45 pm GMT.
Technical Outlook – EUR/USD
The greenback underperformed last week, although the chances of a rate cut have decreased, which would usually strengthen the USD. The pair continued its rebound from the bearish trend line and finished the week above the 1.1600 resistance.
The bias is bullish from a short-term perspective, but the uptrend is exhausted, and the Euro does not show any particular signs of strength. The latest bullish move was most likely generated by US Dollar weakness rather than Euro strength. Now, the next direction hinges on the U.S. data, which will start coming in, and the technical aspect will play second fiddle.
