THE FOREX TRENDS
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With Federal Reserve Chairman Jerome Powell’s recent appearance in Sintra concluded, the focus now shifts to the crucial Nonfarm Payrolls (NFP) data for June, set to be released on Friday at 12:30 GMT. The Bureau of Labor Statistics (BLS) will publish this data, which could provide significant insights into the timing of the Fed’s first interest rate cut this year and the future direction of the US Dollar (USD).
The June Nonfarm Payrolls report is anticipated to show that the US economy added 191,000 jobs, a decrease from the 272,000 jobs added in May. The Unemployment Rate is expected to remain steady at 4.0%. Additionally, the Average Hourly Earnings, a key indicator of wage inflation, is projected to rise by 3.9% year-over-year in June, following a 4.1% increase in May.
These figures will be closely examined by the markets, as they could influence the timing of the Fed’s potential shift towards a more dovish monetary policy. Market expectations for a rate cut in September increased following Powell’s optimistic remarks about recent inflation data at the European Central Bank (ECB) Forum in Sintra. Powell highlighted the progress in reducing inflation but indicated that more data is needed before considering rate cuts.
The US private sector added 150,000 jobs in June, slightly below the revised 157,000 jobs in May, according to the ADP report on Wednesday. This figure also missed analysts' estimates of 160,000 job additions. Notably, the NFP has exceeded ADP figures in nine of the past ten months.
Powell’s dovish commentary, combined with weaker US employment data, has heightened expectations for a rate cut by the US central bank in September, with market probabilities rising to 73% from 64% earlier in the week.
BBH analysts previewing the June employment report stated, “Bloomberg consensus is 191k vs. 272k in May, with a whisper number of 198k. The average gain over the past 12 months is 232k. The unemployment rate is expected to remain at 4.0%, with the participation rate rising to 62.6%. Wage growth will play a significant role in Fed expectations, with average hourly earnings forecasted to rise 0.3% month-over-month, and the year-over-year rate expected to drop to 3.9%.”
The recent dovish tone from the Fed has weakened the US Dollar and US Treasury bond yields, pushing the EUR/USD pair above the 1.0800 level. Attention now turns to the US NFP report, which could confirm easing labor market conditions and a trend in wage inflation.
A stronger-than-expected NFP figure, along with high wage inflation data, could challenge the expectations of a September rate cut, potentially strengthening the US Dollar and leading to a correction in the EUR/USD pair towards 1.0700. Conversely, if the employment data indicates significant labor market slack, the US Dollar could weaken further, potentially pushing the EUR/USD past the 1.0850 level.
Dhwani Mehta, an analyst at FXStreet, provides a technical outlook for EUR/USD: “The EUR/USD pair is hovering around 1.0790, where the 200-day Simple Moving Average (SMA) and the 100-day SMA converge. The 14-day Relative Strength Index (RSI) is above the 50 level, near 54, indicating potential for further upside.”
“Buyers need to secure a position above the convergence of the 200-day and 100-day SMAs for an extended recovery. The next resistance levels for EUR/USD are at the June 12 high of 1.0852 and the 1.0900 round figure. On the downside, initial support is at the 21-day SMA at 1.0746, followed by the 1.0700 level, and the June low of 1.0660,” adds Mehta.
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