EUR/USD Forecast: 1.1180 is the key level ahead of US employment big data

EUR/USD is closing on a very bullish October after not-hawkish-enough Fed chief Jerome Powell delivered another US dollar sell-off late on Wednesday. The pair has rallied up to 1.1170 levels, very close to the 1.1180-high seen earlier in the month, before retracing a bit to 1.1160. Mildly positive Eurozone economic data has also helped to support the pair, with both inflation (Core CPI at 1.1% YoY) and GDP data (0.2% on the QoQ figure) slightly surprising to the upside. 

The key level for the EUR/USD traders to look at is 1.1180. Any break above that resistance set by October 21st highs and the pair will have room to rise and threat to break the long-term bearish trend seen in the daily chart. Our Confluence Detector shows there is good support for the bulls to try another run. A break above 1.12 would be required to confirm it.

On the other hand, a rejection at the current levels would likely trigger another EUR/USD bearish run to keep running the trend that has been in place for the last year and a half. A run to test the 1.08 lows seen in late September would be on the cards before the year ends.

With plenty of top-tier US data to come before the weekend, EUR/USD will still be on the move, and that will mainly be dictated on the outcome of Friday’s Non-Farm Payrolls. Before that, there are some second-tier events on Thursday that could help set the tone, with the Jobless Claims and the Core PCE releases set to be released at 12.30 GMT. 

Let’s take a look at how they could impact EUR/USD:

Jobless Claims, the last NFP leading indicator

The weekly Jobless Claims release gets extra importance this week, not only because it’s a US jobs report week, but also as the ISM PMIs surveys to be released after the NFP, the market lacks some of its usually most-reliable leading indicators. 

Initial Jobless Claims 4-week average has ticked up a bit lately, but it is still hanging around decade-low levels. Only an unexpected sudden pick-up in the number of unemployment benefit claimants would severely damage the EUR/USD. 

US labor market has been slowing down, adding fewer jobs for the last months, but that has not translated yet to an increase in the number of unemployed people. If that starts happening, the US dollar could be on trouble as the Fed would likely prepare further rate cuts.

Core PCE could provide a bearish surprise

Inflation has been a secondary thought in the recent Fed decision-making thought process, as even though it’s a core part of its dual mandate, both CPI and PCE core figures have been kept quite stable in a range not too far from the 2% target. 

That said, the year-over-year number for the Core Personal Consumption Expenditures Price Index is forecasted to fall a tick from 1.8% to 1.7%, which is the opposite way the Fed wants it to go. So, any negative surprise to that number would likely trigger another US dollar sell-off and benefit EUR/USD bulls. On the other hand, a small positive surprise would be more likely to be overlooked, with the market focusing on the employment figures.

Personal Spending and Personal Income figures are also released with the Core PCE number, with the first expected to grow from 0.1% to 0.2% and the second one forecasted to drop from 0.4% to 0.3%. Any surprises on these indicators that go both in the same direction could trigger some secondary action to the EUR/USD.

Background: NFP leading indicators hint a labor market slowdown

One of the main focus for the Federal Reserve has been the potential slowdown in the US economic growth. With business spending subdued on US/China trade uncertainty, consumers have picked up the slack and strong spending has kept the GDP figures on healthy levels. Any shortcomings in the labor market, which is close to all-time high levels, would likely impact negatively consumer spending and trigger more accommodative measures from the Fed. 

So keep track of the following table ahead of this week’s big Non-Farm Payrolls release:

About the EUR/USD market

The EUR/USD (or Euro Dollar) currency pair belongs to the group of 'Majors', a way to mention the most important pairs in the world. The popularity of Euro Dollar is due to the fact that it gathers two main economies: Europe and the United States of America. This is a widely traded currency pair where the Euro is the base currency and the US Dollar is the counter currency. Since the EUR/USD pair consists of more than half of all the trading volume worldwide in the Forex Market, it is almost impossible for a gap to appear, let alone a consequent breakaway gap in the opposite direction.

The EUR/USD reached an all-time high of 1.87 in July of 1973 and a record low of 0.70 in February 1985.

The organization that most impact has nowadays the EUR/USD is the Federal Reserve of the United States (the central bank of that country). Inside that institution, the Board of Governors (also known as the Federal Reserve Board) is carefully observed. The board meets several times per year and announces the interest rates. If rates remain unchanged, attention turns to the tone of the FOMC (Federal Open Market Committee) statement, and whether the tone is hawkish, or dovish over future developments of inflation. Also particularly significant are the 12 Federal Reserve Banks that make up the Federal Reserve. These Federal District Reserve Districts issue their own statements and research data that give hints about the health of the US economy and might as well influence dollar-related currency pairs. The US Government is as well an institution of great importance for the EUR/USD pair: events as administration statements, new laws and regulations or fiscal policy can increase or decrease the value of the US Dollar and the currencies traded against it.

Not only American institutions influence the EUR/USD pair, European too of course. And the number one organization is the European Central Bank, whose main objective is to maintain price stability for the Euro. The ECB sets and implements the monetary policy for the Eurozone (including interest rates), conducts foreign exchange operations and takes care of the foreign reserves of the European System of Central Banks..

Also the EUR/USD pair can also be impacted by other currencies, in particular GBP, CAD, JPY, CNY, and AUD. This group also includes the following currency pairs: GBP/USD, USD/JPY, AUD/USD, USD/CHF, NZD/USD, USD/CAD, GBP/JPY and EUR/JPY