EUR/USD – A very good jobs report for the Federal Reserve, PMIs fall again

• US job growth slows as prior months revised lower
• Wage growth slows to 0.2% on a monthly basis in October 
• EURUSD rebounds off channel lows

The Federal Reserve could not realistically have hoped for a better jobs report today but it will need to be one of a number of positive economic reports over the coming months before it’s ready to declare victory.

The headline NFP miss combined with the -101,000 net revision was big and policymakers will be hoping it’s a sign of things to come rather than a blip in the data. We have been seeing the labor market cooling slightly but just not nearly enough until now and this could be a sign of that accelerating.

The average hourly earnings figures were also very positive, with the monthly number at 0.2% being the second such print in three months. What would have been the third was instead revised up to 0.3% but even then, that’s three extremely encouraging months of wage figures that will give the Fed hope that wages are almost sustainable with 2% inflation.

Further slowdown in services PMIs

Today’s services PMIs have collectively painted the picture of consumers who are feeling the pinch following two years of inflation and rapidly rising interest rates. Pandemic savings have softened the blow in that time and inhibited central bank’s ability to rein in inflationary pressures but they appear to be providing less of a buffer now which could hit economic activity further, if the surveys are to be believed.

Of course, those of the US and China remain in growth territory – just – but they’ve fallen quite a lot since the start of the summer. The UK PMI is slightly in contraction territory which is a blow but we have seen some improvement over the last couple of months. Broadly speaking, we’re not far from the 50-divide between growth and contraction. This could be the sweet spot for policymakers as it weighs on activity, reduces demand, and allows inflation to fall without triggering a significant recession.

EURUSD pushing channel highs

On the back of this week’s Fed speak and data, the dollar has softened which has lifted EURUSD from the bottom of the recent flag formation to the top.

EURUSD Daily

Source – OANDA on Trading View

From looking like it may break lower, in the same direction of the preceding trend, it is now testing the upper end of the range and with some force following the jobs report. While the flag setup is typically bearish due to the direction of travel prior to it, that sell-off wasn’t particularly sharp and the flag is longer than you would typically want to see.

What that means is that while it could still be considered bearish, it’s probably less so than you would potentially see. And so a break higher wouldn’t be entirely surprising, especially when backed by favorable data. If it does break higher, 1.08 could be an interesting initial test, falling around prior support and resistance and the 200/233-day simple moving average band.

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