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The United States Bureau of Labor Statistics (BLS) will publish August's highly anticipated Nonfarm Payrolls (NFP) data on Friday at 12:30 GMT.

The US labor market data hold the key for markets to gauge the size of the expected interest-rate cut by the US Federal Reserve (Fed) in September, ramping up the volatility around the US Dollar (USD).

What to expect in the next Nonfarm Payrolls report?

The Nonfarm Payrolls report is forecast to show that the US economy added 160,000 jobs in August, after creating 114,000 in July.

The Unemployment Rate is likely to dip to 4.2% in the same period from July’s 4.3% reading. Meanwhile, a closely-watched measure of wage inflation, Average Hourly Earnings, is seen increasing by 3.7% in the year through August after rising 3.6% in July.

The August employment data will offer significant insights into the strength of the US labor market, which are critical to shaping the Fed interest-rate outlook at the September 17-18 policy meeting and beyond.

Fed Chairman Jerome Powell indicated during his opening remarks at the Jackson Hole Symposium last month that an "unwelcome further cooling in the labor market" could warrant more aggressive policy action, fanning a 50 basis point (bps) interest rate cut.

Meanwhile, the Fed tweaked its July policy statement to mention that it is "attentive to the risks to both sides of its dual mandate", rather than previously only noting its attention to inflation risks.

Previewing the August employment situation report, TD Securities analysts said: “We expect US payrolls to rebound just north of the 200k mark in August following July's downside surprise. The UE rate likely retraced a tenth to 4.2% with wages rising a firmer 0.3% MoM.”

How will US August Nonfarm Payrolls affect EUR/USD?

The US Dollar (USD) has resumed its downward momentum against its major rivals, sending the EUR/USD pair back toward the 1.1100 threshold. Will the US NFP report double down on the dovish Fed expectations, perking up EUR/USD at the expense of the USD?

In the lead-up to the US NFP showdown, weak Institute for Supply Management (ISM) Purchasing Managers Index (PMI) data raised concerns over a potential ‘hard landing’ for the US economy amid fresh signs of loosening labor market conditions.

The ISM announced on Tuesday that its headline US Manufacturing Index improved slightly to 47.2 in August from July’s 46.8 but remained in contraction while below the estimated 47.5 print. Data on Wednesday showed that US Job Openings dropped to a 3-1/2-year low in July, arriving at 7.67 million, following the 7.91 million openings in June while below the expected 8.1 million. The Automatic Data Processing (ADP) reported on Thursday that the US private sector employment increased by 99,000 jobs in August after rising by a downwardly revised 111,000 in July.

Discouraging US economic data ramped up bets for a 50 bps interest-rate cut by the Fed at its September meeting. Markets are now pricing in a 47% chance of an outsized 50 bps rate cut by the Fed later this month, up from 31% at the start of this week, according to the CME Group’s FedWatch tool.

If the headline NFP figure surprises with payroll growth below 100,000, it could bolster the odds of a big cut in September, exacerbating the US Dollar’s pain while pushing EUR/USD further north. Conversely, a strong NFP print combined with hot wage inflation data would pour cold water on aggressive Fed rate cut prospects for this month, boosting hopes that the Fed may opt for a more modest 25 bps rate reduction. This could fuel a decent US Dollar comeback, reinforcing fresh EUR/USD selling back toward 1.0900.

Dhwani Mehta, Analyst at FXStreet, offers a brief technical outlook for EUR/USD: 

“The EUR/USD pair defends the 21-day Simple Moving Average (SMA) at 1.1061, having recaptured it on Wednesday. The 14-day Relative Strength Index (RSI) points north well above the 50 level, currently near 58, suggesting that buyers are likely to remain in charge in the near future.”

“Buyers need to crack the year-to-date high of 1.1202 recorded last month to take on the 1.1250 psychological barrier. Further up, the July 18, 2023, high of 1.1276 will challenge the bearish commitments. Alternatively, acceptance below the 21-day SMA at 1.1061 is critical for a sustained correction. The next healthy support levels are seen at the 1.1000 round figure and the 50-day SMA at 1.0939,” Dhwani adds.

Source: FXSTREET

The EUR/GBP cross trades in positive territory for the third consecutive day around 0.8435 during the Asian session on Friday. The Eurozone Gross Domestic Product (GDP) for the second quarter (Q2) will be closely watched, which is estimated to grow 0.3% QoQ and 0.6% YoY in the second quarter (Q2). 

According to the 4-hour chart, the negative outlook of EUR/GBP remains intact as the cross holds below the key 100-period Exponential Moving Averages (EMA). However, the further upside cannot be ruled out as the Relative Strength Index (RSI) points higher above the midline near 56.0.

The first upside barrier for EUR/GBP emerges at 0.8440, the upper boundary of the Bollinger Band. Further north, the next hurdle is seen at 0.8457. A decisive break above this level will see a rally to the 0.8500 psychological level.

On the flip side, the initial support level is located at 0.8417, the lower limit of the Bollinger Band. The potential contention level to watch is the 0.8400-0.8405 region, representing the round figure and the low of September 3. The additional downside filter to watch is 0.8383, the low of July 17.

Source: FXSTREET

USD/CHF extends its losing streak for the fourth successive session, trading around 0.8430 during Friday’s Asian hours. The dovish remarks from the Federal Reserve (Fed) officials put downward pressure on the US Dollar (USD) and undermine the USD/CHF pair.

Chicago Fed President Austan Goolsbee said on Friday that the longer-run trend of the labor market and inflation data justify the Fed easing interest-rate policy soon and then steadily over the next year. FXStreet’s FedTracker, which gauges the tone of Fed officials’ speeches on a dovish-to-hawkish scale from 0 to 10 using a custom AI model, rated Goolsbee’s words as neutral with a score of 3.8.

The US Dollar Index (DXY), which measures the value of the US Dollar against its six major peers, continued to lose ground for the third consecutive day, driven by the decreasing US Treasury yields. The DXY trades around 101.00 with 2-year and 10-year yields on US Treasury bonds standing at 3.73% and 3.71%, respectively, at the time of writing.

On the Swiss front, the seasonally adjusted Unemployment Rate remains steady at 2.5% for August, data showed on Thursday. Traders are now awaiting Friday’s release of Foreign Currency Reserves for August to gain further insights into the Swiss National Bank’s (SNB) policy stance regarding the Swiss Franc (CHF).

Moreover, recent data showed that domestic inflation slowed more than anticipated in August, fueling expectations for another interest rate cut by the Swiss National Bank (SNB). The Swiss Consumer Price Index (CPI) increased by 1.1% year-on-year, down from the previous reading of 1.3% and below the market consensus of 1.2%.

Source: FXSTREET

The EUR/JPY cross struggles to capitalize on the previous day's modest bounce from the vicinity of mid-158.00s or a nearly one-month low and attracts some sellers during the Asian session on Friday. Spot prices currently trade around the 159.00 mark amid the prevalent buying interest surrounding the Japanese Yen (JPY).

Against the backdrop of hawkish Bank of Japan (BOJ) expectations, a generally weaker tone around the equity market is seen as a key factor underpinning the safe-haven JPY. In fact, the markets have been pricing in the possibility of another BOJ rate hike by the end of this year and the bets were reaffirmed by data released on Thursday, showing that real wages in Japan rose for the second straight month in July. 

Furthermore, BoJ Board Member Hajime Takata said that we must adjust monetary conditions by another gear if we can confirm that firms will continue to increase capital expenditure, wages, and prices. In contrast, the European Central Bank (ECB) is almost certain to cut interest rates again in September in the wake of declining inflation in the Eurozone. This further contributes to the EUR/JPY pair's downtick.

The shared currency, however, seems to draw some support from a modest US Dollar (USD) weakness, led by bets for a larger interest rate cut by the Federal Reserve (Fed) later this month. This, in turn, might hold back traders from placing aggressive bearish bets around the EUR/JPY cross and help limit deeper losses. Nevertheless, spot prices remain on track to register losses for the third successive week.

Source: FXSTREET

U.S. Initial Jobless Claims