NonFarm Expected to Ease, Impact on EURUSD?

US September labour figures are expected to show easing in the jobs market but keep alive the soft landing narrative that has buoyed the dollar over the euro.

Levelling Off After the Climb

After the Fed's last "hawkish hold", Chair Jerome Powell put the outlook focus on the labour market. He said the job market was still tight despite the jump in the unemployment rate to 3.8%. But he also acknowledged that the supply and demand conditions have come into better balance over the last three months. That would imply that the trends observed so far would keep the Fed on track, but a  jobs report below expectations could incline the possibility towards no more hikes this year.

The consensus is that the unemployment rate will tick back to 3.7%, erasing some of the 0.3% jump experienced in August as the participation rate grew to the highest level since the start of the pandemic. That includes an expectation that 168K jobs will be added, a slowdown from the 187K reported in August. However, this year, it has been a trend for the previous month's number to be revised lower. The figures are expected to show a continuing cooling trend in the labour market, implying dwindling pressure on the Fed to tighten.

The Surprise and the Outlook

Contrary to the cooling trend argument, the Bureau of Labor Statistics released its JOLTS report on Tuesday, suggesting 630K more job openings at the end of August than at the start. That despite labour turnover and hirings remaining reasonably consistent. However, a seasonal increase in job offers in August isn't entirely unexpected, and analysts cautioned that the more volatile job openings number could be a one-off and still fit into the general trend towards cooling. But Wednesday's ADP also showed that the labour market is cooling off, falling short nearly halfway compared with expectations.

While the US economy continues to grow - the Fed's GDPNow tracker is still forecasting Q3 annualised growth at 4.9% - the Fed has plenty of room to keep the pressure on to bring down the inflation rate. That has contributed to rising yields over the last several months. Contrary across the Atlantic, the ECB has halted rate hikes despite higher inflation out of fear of hurting the economy. European yields have not been as attractive, weakening the shared currency compared to the greenback. It would likely take a large disappointment in the jobs numbers to shake confidence in the Fed's tightening commitment, implying the EURUSD could come under further pressure, at least until there is a change in the economic outlook of the worlds' two largest economies.

EURUSD in Potential DCB Decline

The longer-term price action of EURUSD shows the pair might be falling on a dead–cat bounce (DCB) formation, pending further breakdown towards the 100% projection of the first leg to the bounce of $1.0766 seen at $1.025.

In the short term, the pair appears to return to $1.05 for a retest, which, if validated, will open up $1.0368.Conversely, taking a breather past $1.0558 could pave the way towards  $1.0632, improving the chances of a triple bottom and completion of the DCB.

Source: SpreadEx / EURUSD

Key Takeaways

US September labour figures are expected to show a slight easing in the jobs market, reducing pressure on the Fed to tighten unless they come in hotter than expected. Confidence in the Fed's commitment to tightening policies could be shaken by disappointing job numbers, impacting EURUSD with weaker European yields than the US.