Just two days before the release of the US government jobs report, ADP data showed the gradual cooling in the labor market, which is favorable for the Fed.
Nonfarm Employment Change increased by only 103K last month — well below the forecast — which further confirmed Wall Street's dovish stance.
German manufacturing orders unexpectedly fell, underscoring the fact that Europe's largest economy has begun to stall.
Let's see what global financial observers are saying about the situation.
A survey conducted by 22V Research ahead of Friday's jobs report shows that investors believe the period of economic optimism from September through November is over and that the US labor market will weaken in January/February. According to Stan Shipley of Evercore, ADP research institute data released Wednesday and other indicators point to soft employment growth.
While the ADP report isn’t a reliable predictor of the government’s jobs figures, the weaker-than-expected number may set up expectations for Friday’s jobs report to come in “soft”, according to Chris Larkin at E*Trade from Morgan Stanley.
“What we don’t know is how much the markets have already priced in a slowing labor market, or how they will react if Friday’s data comes in stronger than anticipated,” he noted.
Friday’s government print is forecast to show employers added 185K jobs in November. The unemployment rate is seen holding at the highest level in nearly two years.
“The slowdown in hiring continues and is becoming more obvious,” said Peter Boockvar, author of the Boock Report. “What I’m mostly focused on right now is the trajectory of activity — and all I see is slowing in multiple places, including now the labor market.”
Fed policymakers meet next week for the last time in 2023. While no change is expected in their target for the federal funds rate, they are scheduled to release quarterly forecasts that could alter market-implied expectations. Those bets have been gravitating toward more easing next year in response to weaker-than-forecast economic data.
What is the outlook for the eurozone economy?
Markets fully priced in six quarter-point rate cuts by the European Central Bank in 2024, a move that would take the key rate to 2.5%. Deutsche Bank AG helped stoke the dovish sentiment by revising its outlook to also forecast 150 basis points of cuts.
“Inflation fears are melting,” said Prashant Newnaha, a rates strategist at TD Securities. “Central banks believe they have clearly done enough and may need to cut, otherwise real rates may be too high and restrictive.”
In other words, when it comes to the medium and long-term outlook for EURUSD, the main question is who will get more aggressive about the rate cuts: the ECB or the Fed.
For the short-term outlook one needs to wait for Friday's government employment report. If the data is weak (just as the jobs report and ADP figures), it will push EURUSD up.
The final recommendation is to buy EURUSD if Friday’s US employment data is weak.
The profit could be fixed at 1.085. Loss — at 1.068.
This content is for informational purposes only and is not intended to be investing advice.
