EUR/USD – Euro in Holding Pattern Ahead of US Nonfarm Payrolls Report

The euro is unchanged on Friday, as EUR/USD trades just below the 1.12 level. On the release front, the Eurozone will release PPI. In the US, the focus is on job numbers, led by Nonfarm Employment Change, one of the most important economic indicators. The US will also release wage growth data and the unemployment rate.

There were no surprises from Eurozone manufacturing indicators, as Eurozone and German Manufacturing PMIs pointed to expansion, while French and Italian readings continue to indicate contraction. The Eurozone and German readings came in at 51.7 and 53.6 points, respectively. Although the Eurozone release was just shy of the forecast of 51.8 points, it did mark a 3-month low, which could raise concerns. French Final Manufacturing PMIs have pointed to contraction for months, and the July reading came in at 48.3 points. There was some surprise from the Italian reading of 49.8, as it marked the first contraction since January 2015. On the inflation front, although this week’s indicators point to weak inflation levels, the releases were close to the forecasts, so the euro showed little reaction. German Preliminary CPI dropped to a flat 0.0% in August, down from 0.3% a month earlier. This was close to the forecast of 0.1%. Eurozone CPI remained steady at 0.2%, shy of the estimate of 0.3%. These soft numbers will add pressure on the ECB to adopt further monetary easing at its policy meeting on September 7. There was positive news out of Germany this week, as consumer spending and jobless numbers impressed in July. Retail Sales sparkled, jumping 1.7%, its strongest reading in over a year. Employment Change was unchanged at -7 thousand, beating the forecast of -2 thousand.

US data has looked solid this week, but the economy will face a major test on Friday, with the release of Nonfarm Employment Change. US job numbers have met expectations this week. Unemployment Claims came in at 263 thousand, better than the forecast of 265 thousand. It marked the third straight week that the indicator has beat estimates. Earlier in the week, the ADP Nonfarm Employment Change was little changed in August, posting a gain of 177 thousand. This beat the forecast of 174 thousand, the third straight month the indicator has exceeded the forecast. Will the NFP report follow suit? The July reading of 180 thousand was dismal, as the actual reading was just 180 thousand. The bar for August is considerably lower, with a forecast of 180 thousand. The markets will also be keeping a close eye on Average Hourly Earnings, which measures wage growth. The estimate for the August report stands at 0.2%.

With the markets again abuzz about a possible rate hike in late September, Friday’s employment numbers will be even more critical. The catalyst for renewed optimism about a rate hike was Federal Reserve chair Janet Yellen’s upbeat speech about the US economy, and her broad hint that the case for a rate hike had strengthened. However, Yellen did not provide any specifics on a timeline for a move by the Fed. As for Friday’s employment releases, August job data is often unreliable and tends to miss market forecasts. If the August NFP follows this trend with a soft showing, the Fed may give the economy a “free pass” and overlook it. At the same time, a strong release will not mean that a September hike is a lock. Given the exceptional strength of the labor market, the Fed will find it hard to justify a rate increase strictly based on strong job numbers.  Stronger inflation numbers for August, for example, would make a rate hike an easier sell for Fed members who remain uneasy about raising rates. These indicators will be released in mid-September, just before the Fed policy meeting on September 21. For those traders tracking the odds of a rate hike in 2016, the CME Group FedWatch tool, the likelihood of a September hike has dropped to 24 percent, while a December increase is pegged at 56 percent.

EUR/USD Fundamentals

Friday (September 2)

• 7:00 Spanish Unemployment Change. Estimate 15.0K. Actual 14.4K
• 9:00 Eurozone PPI. Estimate 0.1%
• 12:30 US Average Hourly Earnings. Estimate 0.2%
• 12:30 US Nonfarm Employment Change. Estimate 180K
• 12:30 US Unemployment Rate. Estimate 4.8%
• 12:30 US Trade Balance. Estimate -43.0B
• 14:00 US Factory Orders. Actual 2.1%

*All release times are EDT

* Key events are in bold

EUR/USD for Friday, September 2, 2016

EUR/USD September 2 at 7:55 GMT

Open: 1.1199 High: 1.1208 Low: 1.1186 Close: 1.1190

EUR/USD Technical

• EUR/USD has been flat in the Asian and European sessions
•  There is resistance at 1.1278
• 1.1150 has switched to a support role following gains by EUR/USD in the Thursday session. It is a weak line and could see further action on Friday

Further levels in both directions:

• Below: 1.1150, 1.1054, 1.0957 and 1.0821
• Above: 1278, 1.1376 and 1.1467
• Current range: 1.1150 to 1.1278

OANDA’s Open Positions Ratio

EUR/USD ratio is almost unchanged on Friday, consistent with the lack of movement from EUR/USD. Currently, short positions have a majority (56%), indicative of trader bias towards EUR/USD breaking out and moving upwards.

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.