US statistics continue to disappoint dollar bulls: following the release of the extremely weak manufacturing index ISM, a weak report was published today from the analytical agency ADP. The dollar index continued to decline, and the EUR/USD pair got an opportunity for its corrective growth. Once again, the bears could not gain a foothold in the eighth figure, making it possible for the bulls to seize the initiative.
It is worth recalling that a month ago, the ADP report likewise alerted traders, portending weak Nonfarms. As it turned out later, the agency's specialists confirmed their reputation: official figures came out worse than forecasts, causing concern not only among experts, but also among some members of the Federal Reserve. Today the situation is repeating, only now the rates are slightly higher: if Friday's data confirms the weakening labor market, this will be a serious argument in favor of lowering the interest rate by the end of this year.
135 thousand created jobs in the private sector: this verdict was announced today by Automatic Data Processing. Such a low result was the worst in the last four months, since this indicator reached 41 thousand in May (and Nonfarm, in turn, at 72 thousand). However, in this case, the trend itself is more alarming. The fact is that the results of the last month were also reviewed in the direction of deterioration, and very significantly - from 195 to 157 thousand.
The ISM manufacturing index is also worth mentioning here: the indicator of industrial activity in the US fell to a ten-year low, contrary to analysts' forecasts, who expected its growth in September. The volume of construction costs in August also showed a negative trend - instead of growing by 0.5%, the indicator rose only by 0.1%.
Let me remind you that according to the results of the September meeting of the Fed, ten members of the regulator stated that they did not see any reason for easing monetary policy by the end of this year. However, seven of their colleagues still allowed this scenario. Jerome Powell himself tried to maintain a balance between hawks and bears. At his press conference, he strongly avoided making any predictions regarding future prospects, "hiding" behind vague and ambiguous formulations. He said that members of the regulator will make decisions depending on the current situation, while monitoring key indicators. It is quite obvious that after such words all the attention of traders is directed to the Nonfarms data, which either confirms the given trend or refutes it.
In my opinion, today we can say with great certainty that the official data on Friday will disappoint the market - just like a month ago. Even the consensus forecast leaves low chances: according to most analysts, the indicator will reach 140 thousand. In other words, Nonfarm has minimal, if not zero, chances to overcome the key 200,000th mark.
Thus, now the EUR/USD pair is at a crossroads: either the dollar will continue its rally, or the pair will get another chance for recovery, as part of the correctional growth. But here it is worth noting that if official data on the labor market come out even worse than expected, the pair is unlikely to leave the 10th figure. Yes, the impulsive reaction will be bullish, but the upward movement will be limited, since the European currency is now under the yoke of its own problems.
If we talk about the medium term, then everything will depend on the reaction of Fed members to published releases. Indeed, the key statistics in this case are just an excuse to assess the general situation on the part of representatives of the Federal Reserve - and especially on the part of Jerome Powell. The closer the Friday indicator is to the figure of 200,000, the higher the likelihood of "hawkish" notes in the rhetoric of regulator members will be. Vice versa: if the official figures coincide with the ADP report (I'm not talking about lower results), then the "dove wing" of the Fed will have an extra opportunity to remind its colleagues about the need for further steps to mitigate monetary policy. In other words, the medium-term vector of the EUR/USD movement will not be determined on Friday, but somewhat later - when the Fed representatives comment on the situation in the labor market and in the US economy as a whole.
Thus, in spite of today's general weakening of the dollar, on the whole, the fundamental picture remains uncertain, despite the ADP "hint". The technical picture in the medium term also speaks of uncertainty: on a four-hour chart, EUR/USD tested the middle line of the Bollinger Bands indicator, but could not overcome it. On the daily chart, the price could not even approach the midline of this indicator. This suggests that the downward trend is still dominant in the pair, and dollar bulls have only temporarily retreated, waiting in the wings. The Friday release will either return the pair within the framework of the eighth figure, or allow the bulls to "visit" the tenth figure again.
