EUR/USD Forecast: May break 1.10 as markets brace for disappointing Non-Farm Payrolls

Has the US economic slowdown hit the labor market? That is the question on traders' minds as a turbulent week culminates in the all-important Non-Farm Payrolls – "the king of forex indicators."

The US Dollar has been on the back foot after ISM's Purchasing Managers' Index for the non-manufacturing sector fell to 52.6 points – the lowest in three years and below the lower bound of expectations. The score, above the 50-points threshold, still reflects expansion in the services sector – and that cannot be said about the manufacturing sector. Earlier this week, the ISM Manufacturing PMI hit a ten-year low at 47.8 points. Together with a disappointing read on private-sector hiring from ADP, expectations for today's crucial Non-Farm Payrolls report is low. While the economic calendar shows a consensus of 145,000 jobs gained in September, real expectations are lower. Bloomberg's "whisper number" stands at around 125,000. 

See

• US Non-Farm Payrolls Preview: Gathered clouds
• Non-Farm Payrolls Preview: Meager job growth likely – Five EUR/USD scenarios

The labor market has been solidly reliable in recent years and a slowdown in hiring may cause the Federal Reserve to cut interest rates later this month. Bond markets are now pricing in an 87% chance of a rate reduction on October 30, up from around 40% at the beginning of the week. The US Dollar has been on the back foot, allowing EUR/USD to recover.

Richard Clarida, Vice-Chair of the Federal Reserve, has said that global economic headwinds are hurting the US economy and that the Fed will "act as appropriate." Some analysts see these comments as a hint that the Fed will indeed cut rates. Fed Chair Jerome Powell will deliver opening remarks at an event late in the day. It is unclear if he will comment on monetary policy. 

European slowdown and political developments

The considerably disappointing US economic figures have overshadowed disappointing data in the old continent. Markit's final services PMI for the euro-zone for September was downgraded to 51.6 and the composite PMI now stands at 50.1. The 19-country bloc is also nearing a recession. 

Politics are also on the agenda. President Donald Trump has called on Ukraine and China to investigate potential wrongdoing by his potential political opponent Joe Biden. The president is under an impeachment inquiry for abusing the powers of his office for political advantage. Recent opinion polls have been showing a drop in Trump's approval rating, but far from indicating that the Republican Party may abandon him. Nevertheless, political uncertainty also weighs on markets. 

The Washington Post has reported that a second whistleblower complaint has arisen and is related to improper political intervention around tax returns – either by Trump or by Vice President Mike Pence. The story is currently on the backburner but may add to jitters. 

Overall, the US NFP, US politics, and perhaps comments from Powell are set to move markets today.

EUR/USD Technical Analysis

EUR/USD's technical picture has improved. Momentum on the four-hour chart has turned positive and the currency pair has broken above the 50 Simple Moving Average (SMA). Nevertheless, it is capped by the 100 and 200 SMAs.

Resistance awaits at the round number of 1.10, which held it down on Thursday. It is followed by 1.1025, which was a swing high in late September. Next, we find 1.1075, which served in resistance in mid-September. 1.1115 is the next line to watch. 

Support awaits at 1.10960, which separated ranges on Thursday and also in late September. The former double-bottom of 1.0926 serves as support ahead of 1.0905, which was the low point in late September and early October. The 2019 low of 1.0879 follows.