NFP in Focus as Fed Weighs the Next Move on Rates
EUR/USD at Crossroads – 1.700 Break In Question
Last week’s story was inflation, and this week is all about jobs, with the Non-Farm Payrolls (NFP) report just around the corner. The U.S. Core PCE Price Index rose 0.2% month over month, as expected. The yearly figure also matched consensus, rising 2.9% and keeping the narrative on track for another rate cut in October.
The US Dollar Index (DXY), which tracks the dollar’s performance against a basket of 6 peers, dropped on Friday after the inflation data was released. The greenback weakened against the Euro, despite better-than-expected U.S. consumer spending. The Personal Income and Personal Spending indicators both posted figures above expectations, showing that the American economy is still resilient. Usually, these are not high-impact indicators because the Retail Sales report is released about 2 weeks earlier and tends to garner all the attention.
At the time of writing, the probability of another 25-bps rate cut in October is 87.7%, according to CME’s FedWatch tool. There is also a high probability (65.4%) that the Fed will cut the rate for a third time this year, at the December meeting.
Economic Calendar Highlights
Germany’s Preliminary CPI will be released on Tuesday at 12:00 pm GMT, providing fresh insights into inflation in Europe’s largest economy. The Eurozone Core CPI Flash Estimate will be released on Wednesday at 9:00 am GMT.
On Wednesday, at 12:15 pm GMT, we will take a first look at the state of the jobs market in the U.S., with the release of the ADP Non-Farm Employment Change report, which tries to mimic the more important, government-issued NFP.
The Non-Farm Payrolls report will come out on Friday at 12:30 pm GMT and will be the main event of the week, generating the most volatility. The previous report came in way below expectations, at 22K, and played a major role in the Fed’s decision to trim the interest rate. This week’s forecast is an increase to 51K, but it remains to be seen if it will affect the interest rate path because even if the forecast is matched, this is still a low number of jobs.
Technical Outlook – EUR/USD
After an initial break of 1.700, the pair ended last week right on this S/R level, and it is unclear at this moment if the break is real. If the dollar continues to show strength as it did last week, the pair will descend to 1.1600, which is the next level of interest.
The pair broke the long-term bullish trend line drawn from the beginning of the year, which puts the bears in control even though a higher high was recently printed (September 17). However, there is a strong support zone represented by the horizontal level at 1.1600, the bearish trend line drawn from July’s high, and the lower Bollinger Band. If this confluence zone is broken, the path will be open for a drop towards 1.1400. To the upside, 1.1900 remains a major hurdle.
