September NFP data to test cooling state of US labor market

• US non-farm payrolls are set to rise by 140,000 in September, similar to August’s gain of 142,000.
• US labor force data will be released by the Bureau of Labor Statistics on Friday at 12:30 GMT.
• US jobs data could have a significant impact on the direction of Fed interest rates and thus the valuation of the US dollar.

The high-impact United States (US) non-farm payrolls (NFP) data for September will be released by the Bureau of Labor Statistics (BLS) on Friday at 12:30 GMT.

US labor market data is expected to have a significant impact on the performance of the US dollar (USD) against its main rivals as markets speculate on the size of the Federal Reserve’s (Fed) next interest rate cut in November.

What to expect in the next nonfarm payrolls report?

Economists expect the Nonfarm Payrolls report to show the U.S. economy added 140,000 jobs in September, following a 142,000 job gain reported in August.

The unemployment rate is expected to remain unchanged at 4.2% over the same period. Additionally, a careful measure of wage inflation, Average Hourly Earnings, is seen rising 3.8% in the year to September, maintaining the pace seen in August.

September jobs data could bolster markets’ expectations of a 50 basis point (bps) rate cut at the November meeting, even as Fed Chairman Jerome Powell dismissed those expectations during his speech at annual meeting of the National Association for Business Economics (NABE) in Nashville on Monday.

Powell said “this is not a committee that feels like it’s in a rush to cut rates quickly.” “If the economy behaves as expected, that would mean two more cuts this year, both by a quarter of a point, in line with forecasts presented by officials at the September 18 meeting,” he added.

Previewing the September employment report, TD Securities analysts said: “We expect payrolls to improve modestly in September, reaching a four-month high, after weaker net gains of 89,000 and 142,000 in July and August respectively”.

“The EU rate was likely unchanged after falling by a tenth in August to 4.2%. We also look for wage growth to moderate, printing 0.2% month-on-month (3.8% year-on-year) after posting an unexpectedly strong gain of 0.4% month-on-month last month,” they said the analysts.

How Will September’s US Non-Farm Payrolls Affect EUR/USD?

Ahead of the release of US NFP data, markets see a roughly 37% chance the Fed will cut rates by 50 bps in November, down from a 53% chance seen earlier in the week, according to CME Group’s FedWatch. Instrument.

Amid easing bets for a big Fed interest rate cut in November and the intensifying conflict between Iran and Israel, the US dollar is supporting its recovery from more than a year lows against its main rivals.

Mixed data from the Institute for Supply Management (ISM) Manufacturing Purchasing Managers Index (PMI) and JOLTS Job Openings data failed to change the market’s pricing of November’s rate cut move.

The ISM said on Tuesday that its main US manufacturing index held at 47.2 in September and remained deeply in contraction, while below the forecast of 47.5. US job openings rebounded to a three-month high in August, reaching 8.04 million, after falling to 7.71 million in July.

Automatic Data Processing (ADP) reported on Wednesday that US private sector employment rose by 143,000 jobs for September, accelerating from an upwardly revised 103,000 in August and better than the estimate of 120,000. The strong ADP jobs report eased concerns about the health of the US labor market, leaving room for a positive surprise in Friday’s payrolls data.

If the headline NFP reading shows payrolls growth below 100,000, it could suggest further cooling in the US labor market and therefore strengthen the chances of a big cut in November. This could initiate a new US dollar downtrend while pushing EUR/USD back to 1.1200.

Alternatively, a stronger-than-expected NFP figure, along with hot wage inflation data, would fuel expectations that the Fed could opt for a 25 bps rate cut, providing further points for the US dollar’s recovery and crushing the EUR/ USD at 1.0900.

FXStreet analyst Dhwani Mehta provides a brief technical outlook for EUR/USD:

“EUR/USD broke above the 50-day simple moving average (SMA) at 1.1044 amid renewed downtrend. The 14-day Relative Strength Index (RSI) points well south below the 50 level, currently near 44, suggesting sellers are likely to maintain their advantage for the foreseeable future.”

“On a daily candle closing below the 50-day SMA at 1.1044, sellers will flex their muscles towards the 100-day SMA support at 1.0928. Below, the 200-day SMA at 1.0875 will be the last line of defense for buyers. Alternatively, it needs to recover the 21-day SMA at 1.1102 to cancel short-term bearish pressure. Next, the yearly high (YTD) of 1.1214 will be tested en route to the psychological barrier of 1.1250,” adds Dhwani.