The beginning of October is ahead, which means that key data on labor market growth for September will be released in the US. The significance of this data is hard to overestimate, considering the fundamental picture that has developed for the EUR/USD pair.
The MN timeframe shows that the pair has demonstrated upward movement for the third consecutive month. In July, the price bounced off the base of the 7th figure and since then has climbed over 500 pips, reaching the 1.1214 mark in September. However, the 1.1200 price level proved to be a "tough nut to crack," as buyers could not consolidate above the 1.1200 target. Over the past two weeks, traders have been essentially treading water, circling within the 1.1080-1.1190 price range. The EUR/USD bulls have attempted to move higher several times, but the bears repeatedly seize the initiative as soon as the pair leaves the range above.
This is due to the contradictory fundamental picture developed for the euro-dollar pair. The European currency came under pressure amid growing dovish expectations from the European Central Bank. The likelihood of an interest rate cut at the October meeting has significantly increased (to around 80%, according to some estimates) following the release of disappointing PMI, IFO, and ZEW indexes and the slowdown in inflation in France and Spain.
In other words, EUR/USD buyers currently cannot rely on support from the euro unless Eurozone-wide inflation surprises traders with a "green hue." Excluding this scenario, further price growth (sustained growth) is only possible if the US dollar weakens further.
However, the greenback has recently been holding its ground: the US Dollar Index dipped into the 99 range several times but ultimately stayed above the 100.00 target. The dollar received support from Federal Reserve Governor Michelle Bowman, who advocated for a moderate pace of monetary policy easing. The core PCE index also sided with the dollar, rising to 2.7% in August after spending two months at 2.6%.
Yet, the US currency remains vulnerable. The Achilles' heel of the greenback is the US labor market, which has recently shown signs of cooling down. Therefore, if the September Nonfarm Payrolls disappoint once again, the US currency will come under intense pressure—in this case, neither Bowman nor inflation will be able to save it.
Almost all Fed representatives who have spoken in the past two weeks expressed concern about the state of the US labor market. In particular, Jerome Powell, following the September meeting, stated that the upside risks to inflation have decreased while the downside risks to the labor market have increased. Justifying the 50 basis points rate cut, the Fed chair mentioned that nominal wage growth over the past year has slowed, and job growth over the last three months averaged 116,000. The Fed's shift in focus from fighting inflation to protecting the cooling labor market heightens the significance of the September Nonfarm Payrolls report.
The key report on US labor market growth will traditionally be released on the first Friday of the month, which is October 4. However, this report will be preceded by other releases in this area, which may also impact the EUR/USD pair.
For example, on Tuesday, October 1, we will learn the number of job openings as of the last business day of August (JOLTS Job Openings). This indicator has shown a downward trend for the previous two months (July and June). August is expected to be the third month in this series – according to forecasts, the indicator is expected to come in at 7.640 million (in July, it was 7.673 million).
The ADP report will be released on October 2, the next day. A rather weak result is also expected here. The forecast suggests an increase in employment in the non-government sector by only 124,000. If, contrary to expectations, the figure falls below the 100,000 mark, the dollar will come under pressure ahead of the official data release.
Finally, the September nonfarm payrolls will be published on Friday, October 4. According to preliminary forecasts, the unemployment rate should remain at 4.2%, and the number of jobs in the nonfarm sector is expected to increase by 144,000. This means the figure will once again fall short of the 200,000 mark. Meanwhile, the growth rate of average hourly earnings is expected to slow sharply to 3.2% after an unexpected acceleration to 3.8% in August.
As we can see, the forecast for nonfarm payrolls is relatively weak. Therefore, if the report's components end up in the "red," the dollar will be knocked down again, as the probability of a 50-basis-point rate cut at the Fed's November meeting will increase to 60-75%.
The US labor market report is the most important one for the EUR/USD pair, but it is not the only one. Some other releases can also trigger certain volatility. For example, the ISM Manufacturing Index will be published on Tuesday, October 1. According to forecasts, the indicator will remain in the contraction zone but show a minimal increase, rising from 47.2 to 47.6. The dollar will receive significant support only if, contrary to forecasts, the index exceeds the 50-point target.
The ISM Services PMI can also play a role. Here, the situation is mirrored: the indicator is in the expansion zone, but experts predict a slight decline (from 51.5 to 51.2). For dollar bulls, the index must not fall below the 50.0 mark.
The euro will react to the release of inflation data in the Eurozone. The report is expected on Tuesday, October 1. According to forecasts, the overall Consumer Price Index will slow to 1.9% in September, and the core CPI will be 2.7%. If the figures come out at least at the forecast level (not to mention in the "red"), discussions about an ECB rate cut in October will intensify, and the euro will come under additional pressure. However, the opposite situation is also possible – if inflation unexpectedly accelerates, the spring will uncoil in the opposite direction, and the euro will gain, so to speak, its "subjectivity." In that case, the EUR/USD pair will rise due to the weakening greenback and the strengthening of the single currency.
Thus, the first week of October will be far from boring, volatile, and, in many ways, defining for the EUR/USD pair.
From a technical standpoint, on the daily chart, the pair is between the middle and upper lines of the Bollinger Bands indicator and, above all, the lines of the Ichimoku indicator. To confirm (or resume) the upward trend, EUR/USD buyers need to consolidate above the 1.1210 mark (the upper Bollinger Bands line on the D1 time frame) within the 12th figure. In this case, the next target for the upward movement will be the 1.1260 mark (the upper Bollinger Bands line on W1). The task is more complicated for EUR/USD sellers: they need to consolidate below the 1.1080 mark (the middle Bollinger Bands line, coinciding with the Kijun-sen line on the daily chart).
Considering the upcoming releases, it can be assumed that the pair can leave the price range mentioned above by the end of the first week of October. The question is in which direction – toward the 12-13 figures or to the base of the 10th figure? Everything will depend on the "health" of the US labor market, the "color" of the ISM indexes, and the inflation dynamics in the Eurozone.
