03.09.202619:22 Forex Analysis & Reviews: EUR/USD. The Fed Sees No Reason to Raise Rates

On Friday, September 4, the economic calendar contains at least two major releases. These are, of course, the Nonfarm Payrolls report and the unemployment rate. Needless to say, these reports will determine not only the dollar's performance on Friday but also the outlook for Fed monetary policy, which is currently the subject of much discussion. In my view, the situation is straightforward. The key release is Nonfarm Payrolls, while the unemployment rate will provide an adjustment. Thus, whether the Fed will decide to raise its interest rate at least through the end of the year will depend on whether August payrolls come in above 58,000. In recent weeks, the dollar has managed to strengthen largely on the market's hawkish expectations. If these expectations disappear, bears could weaken the dollar very quickly.

I would also like to highlight several very important factors that indirectly point to a neutral FOMC decision in September. First, there is the labor market, which has already been discussed extensively. In my view, the reports released in recent months simply do not allow the FOMC to make a decision to raise rates. Second, there is inflation, which has declined over the past two months. Whether it will accelerate in August remains unknown. Without an increase in inflation, however, the Fed has no need to tighten monetary policy. Third, there is the committee's actual policy stance. At the previous meeting, only a few policymakers voted in favor of tighter policy, even though inflation was significantly higher at the time than it is now.

Fourth, New York Fed President John Williams said recently that the disinflation process in the United States is continuing, as the impact of import tariffs on the economy is declining. Energy costs are indeed high, but they are not spilling over into other categories of goods and services. Williams also said that the Fed's current interest rate is fully consistent with the prevailing economic and geopolitical conditions and allows the Fed to maintain a balance between its dual mandate of maximum employment and price stability. Other policymakers may, of course, hold a different view, but in my opinion, the economic reality is such that the FOMC's September decision will be clear-cut and unanimous. The market has been cautiously buying dollars in recent weeks, but as early as tomorrow and throughout September, it may become disappointed with the market's commitment to a hawkish stance several times.

Economic Calendar for the United States, the European Union, and the United Kingdom:

• European Union – Change in retail sales (09:00 UTC).
• United States – Change in Nonfarm Payrolls (12:30 UTC).
• United States – Unemployment rate (12:30 UTC).
• United States – Change in average hourly earnings (12:30 UTC).

EUR/USD Forecast and Trading Tips:

In my view, the pair remains in the process of forming a bullish trend that paused for an entire year. The fundamental backdrop shifted sharply in favor of the bears six months ago, but the trend itself cannot be considered canceled or complete. From a long-term perspective, I would say that the pair is trading in a range. However, the range does not invalidate the broader bullish trend. Therefore, the bulls may well resume their advance after two liquidity sweeps of clearly defined lows. At present, bullish traders have an excellent support zone in the form of imbalance 20, where a new bullish signal may form. We have already seen a precise rebound from imbalance 21. I consider 1.1797 and 1.1850 to be the targets for a new advance in the euro.

GBP/USD Forecast and Trading Tips:

The long-term outlook for the pound remains bullish. After liquidity sweeps of the two most recent swings and the formation of a series of buy signals, the bulls may still resume their advance. Unfortunately, the bears have controlled the initiative over the past week, and all recent bullish patterns have been invalidated. The bears currently have technical grounds to push the pair lower. Only the euro may be able to save the pound. The liquidity sweep of the May 1 swing triggered the decline, and a sell signal formed inside inverted imbalance 27. It is difficult to say how long the pound will continue to fall. Two bullish imbalances on EUR/USD could potentially stop the decline. On Friday, the United States will release important labor-market and unemployment reports.