FOMC Mins and CPI to Move EURUSD

Following the unexpected employment figures published on Friday, the FOMC minutes will attract significant attention as participants consider balancing the labour data against CPI due for release the following day.​

Jobs Market Remains Strong

The latest NFP figures came as a surprise last Friday. They showed continued strength in the jobs market, reducing expectations for further interest rate cuts by the Federal Reserve. The number of jobs created in September was well above forecasts, with the unemployment rate falling and earnings growth accelerating. All of these factors indicate that inflationary pressures may still be present, placing importance on the upcoming CPI data for September.

Prior to the jobs report, markets were pricing in around a one-third chance of a 50 basis point cut to interest rates in November. This possibility was completely wiped off following the data and the likelihood of rates remaining on hold has begun to increase, though it remains a small chance. Markets have now adjusted to expect 50 basis points of cuts for the remainder of the year, down from 75 basis points anticipated just a week ago. The dollar gained, pushing the euro lower, as interest rate differentials appear likely to remain steady or possibly widen further as the ECB continues debating the appropriate level of additional monetary easing given stagnant economic growth.​

What the Fed May Do Next

In light of the stronger-than-expected jobs growth, investors will carefully examine the minutes from the Federal Reserve's last meeting, where they cut interest rates by 0.5%. Notably, Federal Reserve Board member Michelle Bowman dissented in favour of a smaller 0.25% cut, the first dissent since 2005. Evidently, the meeting was contentious, and traders will seek greater clarity on how evolving employment levels and wage inflation influenced the decision. Did the FOMC truly feel they had fallen behind the curve, as Chairman Powell implied another cut may have occurred in July if more up-to-date jobs data was available? If committee members supported easing due to July and August figures (the latter of which was revised higher), markets may further adjust their expectations around future interest rate changes.

On Thursday, the Bureau of Labour Statistics is anticipated to report that the overall inflation trend continued to slow. Headline CPI is forecast to decline back to 2.3% from 2.5% prior, while core inflation is projected to edge down to 3.1% from 3.2%. The markets could be more sensitive to stronger than expected data as it would align with employment numbers. Conversely, EURUSD could recover if there is a significant miss which could help reassure traders that moderating inflation will keep the Fed on its current easing path.​

EURUSD Exits Uptrend

EURUSD has faced significant pressure after forming a double-top pattern at 1.12. The pair has lost the 1.10 handle, but slipping below the upward trending channel and retesting the lower trendline is a major continuation risk. A break below 1.095 could open the door to the next major support at 1.08, should the 1.0881 interim support be lost. Conversely, if prices manage to move back inside the trend channel, a bounce towards the 1.1025 resistance initially could be seen. The recent low of 1.1083 could provide the next challenge before another attempt is made to reach the recent high.​

Source: SpreadEx / EURUSD

Key Takeaways

The minutes of the Federal Reserve's last meeting and upcoming CPI data could influence EURUSD movement. Stronger-than-expected job growth in September reduced expectations of further US rate cuts, but investors will examine the FOMC minutes for clarity on how employment may influence the October rate decision. They will also closely watch the next CPI report for signals on inflation trends and the Fed's monetary policy path. Overall, the US labour market remains robust, but it remains sensitive to upcoming data points that could impact expectations of the Fed's interest rate stance.​