NFP Overshoots Again. Rate Cuts Further Delayed?

Dollar Bulls, Rejoice: EUR/USD Prints Triple Top.  

The U.S. economy is not slowing down according to Friday’s stellar Non-Farm Payrolls report that overshot expectations by a huge margin. The report showed that 272K new jobs were created, while last month’s number was 165K and the forecast was 182K.

The Average Hourly Earnings also increased by 0.4%, exceeding the 0.3% forecast and doubling the last month’s reading. The Unemployment Rate was the only one that came out in the red, showing that more people are unemployed (4.0%) compared to last month (3.9%).

As a result, the US Dollar Index (DXY) rose from 104.00 to 105.30 during Friday and Monday’s trading sessions. The EUR/USD pair moved from 1.0900 to 1.0750 due to increased USD pressure. According to the CME FedWatch tool, there’s a 43.4% probability that the rate will be cut in September.

Economic Calendar Highlights

This week, traders will be focused on another big part of the inflation equation: the Consumer Price Index (CPI), which is scheduled for release on Wednesday at 12:30 pm GMT. The Core version is expected to remain unchanged at 0.3% but the headline figure is expected to show 0.1%, lower than the previous 0.3%.

A drop in inflation could increase the chances of a rate cut in September. And speaking of rate cuts, the FOMC will announce the rate decision on Wednesday at 6:00 pm GMT, just a few hours after the CPI numbers come out. The rate will remain unchanged more than likely but the FOMC Statement may reveal clues about the timing of the rate cut. Also, at 6:30 pm GMT, Fed Chair Powell will hold the usual press conference which creates volatility most of the time.

Thursday at 12:30 pm GMT we take a look at the U.S. Producer Price Index (PPI) and Core PPI. The indicator has inflationary implications because a higher price charged by producers will ultimately translate into a higher price paid by the consumers. The final release of the week will be the Prelim UoM Consumer Sentiment, scheduled for Friday at 2:00 pm GMT.

Technical Outlook – EUR/USD

The pair created a triple top at 1.0890 and US Dollar strength took it below the support at 1.0775. Monday’s session opened with a price gap and usually, these gaps are closed more often than not. If this is the case, the pair will travel up into the 1.0800 area.

Even if the gap is closed, it does not mean that it will happen right away. The pair can travel lower before moving up to close the gap. For short-term movement, the most important barrier is the bearish trend line seen on the chart below. If the price fails to break this support, it may climb back above the 50-day Moving Average and above 1.0775.