NFP Fallout Hits Dollar; Markets Brace for PCE Uncertainty

EUR/USD Set for Sideways Action Unless Economic Data Surprises

The dollar ended a week of gains against most of its peers, after the highly anticipated Non-Farm Payrolls (NFP) report came out with mixed results. Job creation in the United States is not a major concern, as shown by last week’s NFP: 119K new jobs were created, more than double the forecast 53K.

However, the previous report was revised from 22K to -4K, which shows that the labor market is in a dire situation, even more than initially thought. Another reason for concern was the Unemployment Rate, which ticked higher at 4.4%, while the previous and forecast were both 4.3%.

Immediately after the NFP release, the odds of a December rate cut by the Fed dropped below 30%. A week before that, the probability of a December cut was 50%. At the time of writing, the odds have increased once again and now stand at 71%, according to CME’s FedWatch tool.

New York Fed President John Williams played an important role in this probability shift after he said that the labor market risk is greater than the one posed by inflation. He also mentioned that there is still “room for a further adjustment in the near term”. Key inflation data might be released this week, so the odds of a December rate cut will likely change again.

Economic Calendar Highlights

The first release of the week will be the U.S. Producer Price Index (PPI), which shows the changes in the prices that producers charge for their goods and services. The indicator has inflationary implications because a higher producer price usually means that consumer prices will increase. The release is scheduled for Tuesday at 1:30 pm GMT. The U.S. Retail Sales numbers, which are the main gauge of consumer spending, will be released at the same time.

The Core PCE Price Index is marked as “Tentative” on Wednesday’s calendar, and if it is released, it will most likely trigger increased volatility. This is the Fed’s preferred gauge of inflation and can strongly affect rate cut probabilities. At this time, it is unclear whether the PCE will come out this week or not, but it looks like the effects of the government shutdown still linger.

U.S. banks will be closed on Thursday in celebration of Thanksgiving Day, and volatility will likely be affected. The only other notable release of the week will be the German Prelim CPI, scheduled for noon on Friday.

Technical Outlook – EUR/USD

The pair is on a downward path after the last failed attempt to break above the resistance at 1.1600. Assuming there’s no major disruption coming from the Fed interest rate, the first destination will be the confluence zone created by the bearish trend line and the support at 1.1400.

If this support zone breaks, we can consider the uptrend over, and the pair will be headed towards 1.1200. Also, it’s very possible to see an extended period of range-bound price action, where the pair bounces from the upper to the lower Bollinger band and then back again.