October NFP Fallout: USD Takes a Hit, Rate Likely to Stop

Double Bottom Boosts EUR/USD. A Technical Reversal in the Making.

The greenback sank to its lowest in six weeks and the yields on 10-year U.S. Treasury notes dropped to their lowest in five weeks on Friday following the U.S. labor market reports. The data indicated a significant deceleration in U.S. employment growth for October, surpassing predictions.

The slowdown in job growth was partly attributed to strikes by the United Auto Workers union against the major Detroit automakers, which adversely affected manufacturing jobs. The data further revealed that the growth in yearly earnings was at its most modest in over two years.

The Federal Reserve’s decision on Wednesday to maintain interest rates, coupled with Fed Chair Jerome Powell’s remarks, led some investors to believe that the Fed might stop raising rates. It’s relatively safe to assume the Fed is done hiking but additional actions might be necessary to combat inflation if it persists

Traders have significantly adjusted their expectations, now foreseeing just a 9.6% probability of a rate hike by the Fed in December, a drop from 20% the day before the jobs data. The likelihood of a rate increase in January is now just 16%. On the other hand, rate cuts are expected to start in June 2024, with an almost 80% probability. The data was provided by CME’s FedWatch tool.

Key Data for the Week Ahead

Major data releases are scarce this week but volatility will be powered by the speeches of heads of central banks.

Wednesday at 2:15 pm GMT, Fed chair Jerome Powell will speak at the Division of Research and Statistics Centennial Conference. A day later, Thursday at 7:00 pm GMT, the Fed Chair will participate in a panel discussion at the Jacques Polak Annual Research Conference titled Monetary Challenges in a Global Economy. Audience questions are expected and this event will probably have a bigger impact than the previous.

ECB President Christine Lagarde will speak Thursday at 5:30 pm GMT in Brussels at the inauguration of the House of the Euro. Friday at 12:30 pm GMT, she will participate in a discussion at the Financial Times’ Global Boardroom, in London.

The last notable event of the week will be the release of the Prelim UoM Consumer Sentiment survey, scheduled for Friday at 3:00 pm GMT.

Technical Outlook – EUR/USD

After the release of the U.S. jobs data on Friday, the euro bulls overcame the dollar bulls, and the pair finished the week at 1.0727. Friday was also the day when the pair decisively broke the resistance at 1.0635 and moved clearly above the 50-day Moving Average.

This could be the beginning of a period of upside movement, considering the rate situation and the economic outlook in the United States. Also, from a strictly technical standpoint, the pair has formed a double bottom at a significant support level (1.0500), first touching this threshold at the beginning of the year and mirroring that movement with the current bounce.

The next level to watch is the resistance at 1.0775, followed by the bullish trend line drawn from the first touch of 1.0500. The bias should be considered bullish as long as the pair is trading above the 50 MA.