The euro-dollar pair is undergoing a correction in anticipation of the most significant macroeconomic release of the week. Tomorrow, October 6, key labor market data will be published in the United States. As known, this report has the potential to trigger increased volatility in dollar pairs, and the EUR/USD pair will not be an exception. In anticipation of this event, traders are clearly cautious, so while the pair is demonstrating corrective growth, this rise appears rather sluggish and lacking initiative.
The immediate reason for the corrective pullback was the report from the ADP agency, which reflected a catastrophically small increase in the number of employees in the private sector in September. With a forecast of nearly 160,000, the figure came in at 89,000, the weakest result since December 2020. It is also worth noting that in the previous month, the wages of already employed workers increased by 5.9% (year-on-year). This component of the report shows a downward trend for the 12th consecutive month.
Note that the ADP report does not always correlate with official figures, but in this case, the multi-month record low surprised market participants. Concerns have risen that Friday's Nonfarm Payrolls will also be in the red zone, thereby weakening the positions of the dollar bulls. Reacting to this release, EUR/USD traders lifted the siege from the support level at 1.0450 (the lower line of the Bollinger Bands indicator on the D1 timeframe) and returned to the boundaries of the 1.05 figure. Not a remarkable achievement, but a fact remains a fact: the downward trend has been halted. In the current circumstances, this is already a victory for EUR/USD buyers.
It is noteworthy that preliminary forecasts regarding official data are of a "moderately optimistic" nature, so to speak. According to most experts, the unemployment rate in September is expected to decrease to 3.7% (after an unexpected rise to 3.8% in August). The number of nonfarm payrolls is expected to rise by 168,000, a weak but not catastrophic result (for example, in July, the figure stood at 157,000). The number of private sector employees is expected to grow by 160,000. For comparison, in June, this component of the report was at 128,000; in July – 155,000; and in August – 179,000.
The share of the economically active population is expected to increase to 62.9%, the highest level since March 2022.
A separate point should be made about wages. According to forecasts, the average hourly wage rate in September will remain at the August level, which is 4.3%. If this figure falls short, the dollar will come under significant pressure, even if the other components of the release meet expectations or fall within the "green zone."
As we can see, the overall forecast for September Nonfarm Payrolls is cautiously optimistic. However, according to ADP specialists, a sharp decline in the number of jobs was recorded last month. In such conditions, the dollar appears vulnerable: if Friday's release ends up in the "red zone," EUR/USD buyers may not only consolidate around the 1.05 level but also aim for the 1.06 level.
Nevertheless, an alternative scenario is not ruled out. In essence, the catastrophic ADP report is not a verdict. As mentioned earlier, unofficial data often does not correlate with Nonfarm Payrolls. Therefore, it is not advisable to jump to conclusions at this point. EUR/USD traders are cautious about going long for a reason. After all, if Nonfarm Payrolls unexpectedly end up in the "green zone," this report will complement a decent fundamental picture for the greenback.
Recall that the Manufacturing ISM Index published earlier this week turned out to be much better than expected (rising to 49 points from a forecasted drop to 47.2). Yesterday, another important indicator was released in the United States—the ISM Business Activity Index in the services sector. It also ended up in the "green zone," reaching 53.6, while the forecast was for a decline to 52.8 points. If Nonfarm Payrolls provide additional support for the U.S. dollar, the EUR/USD pair may return to the 1.04 range.
For now, we are observing a weak but still corrective rise in the pair. This is happening amid a correction towards lower yields of U.S. Treasury bonds and a drop in oil prices. The disappointing ADP report played the role of a "final touch" in organizing the corrective counterattack by EUR/USD buyers.
However, there are currently no grounds for sustainable price growth. Certainly, Nonfarm Payrolls can make their contribution, tipping the scales one way or the other (if they significantly deviate from forecast values). But it is not possible to talk about any signs of a trend reversal at this time. In such conditions, it is advisable to maintain a wait-and-see position on the pair, as tomorrow's report can provoke strong volatility, partly due to this unexpected "preview" from ADP.
