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Business / Finance

EUR/USD: weak Nonfarm diplomatically Powell and stolid dollar

Analytical reviews Forex 05.10.2019 at 13:29

Daily analytical reviews of the Forex market from InstaForex company

Data on the US labor market proved to be very controversial. On the one hand, the unemployment rate unexpectedly declined to record-low levels, while the increase in the number of employed in non-agricultural sector came in the red zone, failing to forecast values. After some hesitation, the market decided that "the glass is half full" and not Vice versa, after which the dollar became in high demand. However, following the release of Nonfarm, no winners or no losers: the bears were unable to pull a pair in the eighth district figures, while the bulls were only able to approach the resistance level at 1.1000 (middle line of the Bollinger Bands on the daily chart, coinciding with the lines Kijun-sen of Ichimoku indicator). By and large, the eur/usd pair remained in the same positions as before the release. Published data are unable to radically change the fundamental picture for the pair, although in my opinion, they are clearly not in favour of the American currency.

Almost all of the components out worse than expected, reflecting the slowdown of the labor market. Only the unemployment rate surprised with an unexpected decline to the level of 3.5%. This is a record of several decades – the last time the index was at this level back in 1969. However, this fact actually provides little comfort to dollar bulls. Unemployment rate not so quickly reacts to the current situation – this applies to lagging economic indicators. So some optimism for dollar bulls is premature, as more timely indicators suggest a rather alarming trends.

Why traders eur/usd virtually ignored the frankly weak Nonfarm? In my opinion, this is explained by several reasons. First, market participants were willing to reduce the labour market after the publication of weak report from the analytical Agency ADP. According to them, the number of jobs in private American companies rose in September to 135 thousand – this is the worst result since may of this year. The report was a harbinger of weak Nonfarm. For example, a month ago, the number of people employed in non-agricultural sector grew by 145 thousand (before the revision), while the ADP report showed an increase in the number of employees in 157 thousand.

a High level of correlation of these indicators warned market participants that the official figures in September could be below the forecast values. And so it was: instead of growth by 145 thousand (consensus forecast) index grew by 136 thousand. The number of people employed in the private sector of the economy grew by only 114 thousand, while the forecast was at the level of 130 thousand. But the number of jobs in the manufacturing sector actually contracted (two thousand) – for the first time since April of this year. Here it is worth Recalling that the ISM manufacturing index has been declining steadily for the past 6 (!) months, falling in September to around 47.8 per item (10 year minimum). Slightly decreased also the share of economically active population – up to 63.2%. In this case, the decrease is minimal, but still played a role, given the dynamics of other indicators.

Especially disappointed Nonformal inflation component – average hourly wages. This is important for the fed rate was at zero on a monthly basis (the worst result since November 2017) and by 2.9% in APR (the worst result since September 2018). This trend corresponds with uncertain growth in key inflation indicators.

it is worth noting that the labour market for a long time been a reliable tool for the dollar. On the background of fluctuations of other key indicators, Nonfarm always supported dollar bulls – after the spring recession, the us labor market has recovered and "keep the brand" a few months. But figures published yesterday on the background of a steady decrease in the manufacturing index ISM greatly marred the overall fundamental picture for the U.S. currency. But the market, in fact, ignored this fact, justifying the decline to temporary factors.

the fed's Jerome Powell also "played along" dollar bulls. Speaking yesterday evening at a hearing in Washington, he announced as diplomatically position, retaining their rhetoric appropriate balance. On the one hand, he stated that the us economy is in "good shape", the unemployment rate approached a 50-year low, and inflation is striving to achieve the target target. On the other hand, Powell recalled "numerous risks" facing the US economy. First of all, we are talking about a slowing global economy amid the ongoing trade disputes on a global scale. Thus playing the role of "good and bad COP" in one person, the head of the fed, in fact, nothing definite is said – dollar pair after his speech remained at the same price positions.

Thus, the market has scrolled a page last week, disregarding disturbing, in my opinion, signals. Powell, in turn, did not escalate the situation, thus confirming the "correctness" of market reaction. So now all the attention of the foreign exchange market will be focused on trade negotiations between the US and China, which should start later on 10-12 October. The outcome will determine further movement direction of the U.S. currency. And while the traders of eur/usd again forced to hang out in the flat: the bears will pull the pair to the lower end of the price range (worth 1.0890 – the lower line of the Bollinger Bands on the daily chart), while the buyers will rush to the "ceiling" of the corridor, that is, to 1.1080 (the lower boundary of the cloud Kumo coincident with the upper line of Bollinger Bands indicator on the same timeframe). But to break out of this range could only be at the end of crucial trade negotiations.

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