Summary:

• the NFP report in October could show a massive increase in employment after a hurricane-affected September
• EURUSD at a crucial point ahead of the report, the head and shoulders formation still in play
• Tax plan, FOMC nominations having an impact on the US dollar as well

This week is about the US: FOMC meeting, FOMC chairman name announcement, Tax plan and last but not least – the NFP report for October. After a dismal employment report for September the question is not if the October’s report is good, but how good it is. We take a look at what to expect and a possible consequences for the EURUSD. 

Markets expect a significant rise in employment after a hurricane-affected September. Source: Macrobond, XTB Research 

The last report showed the first decline in employment in 7 years. However, do recall that September was disturbed by hurricanes that affected employment decisions. Therefore, a decline in employment of 33k did not represent a deteriorating economy but just some temporary factors. Otherwise the report was quite strong – it showed another decline in the unemployment rate (to 4.2%, this rate is calculated from a different survey) and even more importantly – acceleration in wage growth to 2.9% y/y. Looking at other indicators of labour market situation we can conclude that it’s very strong. 

Wage data is just as important for market reaction as the data on employment. You can find all the data in xStation calendar. Source: xStation5 

Indeed the ADP report revealed an increase in private employment of 235k and the ISM from the manufacturing sector was very solid as well. Because the ADP for September showed a gain in employment of 110k we can assume that amplitude of changes in case of the NFP will be stronger and the market consensus of  +314k is within a reach. In any case market participants will look more at a trend and try and make some conclusions when a dust will settle in the data (in a month or two). This time any increase in employment in excess of 200k could be satisfactory for as long as wage dynamics (which was a big positive surprise last month) does not disappoint and unemployment rates stays close to 4.2%. 

EURUSD is in a downward sequence and a head and shoulders remains in play. Source: xStation5 

The report could be crucial not because there are huge uncertainties around the labour market but because the EURUSD is at a very important level. When you look at a D1 interval you could see a neckline of the head and shoulders formation broken and it is now being retested from below. A theoretical target of this formation is 1.14. Keep in mind there are other factors having an impact on the US dollar these days: while a nomination of the next FOMC chairman could be a done thing (although if Taylor is to become a vice-president to Powell it could have a major impact on the USD as well) , we are still waiting for details of the tax plan and this could have as large ramifications for the greenback as the NFP print.