02.09.202011:30 Forex Analysis & Reviews: EUR/USD. A full swing correction: ISM index supported the dollar

The euro/dollar pair is showing a correction, while being in the "standby mode". Both bulls and bears of the indicated currency pair need additional information that would push the pair in one direction or another. The corrective decline is relatively modest – the pair has not yet reached the nearest support level located at 1.1840 (the middle line of the Bollinger Bands indicator, coinciding with the Kijun-sen line). The reason for the correction was the American ISM manufacturing index, which surged to 56 points in August. This value was the highest since January last year. Thus, the indicator came out in the positive zone, significantly exceeding the forecast values (54.2 points). In addition, the price index rose to 59.5 points (from the previous value of 53.2), while the new orders index rose immediately from 61.5 to 67.6 points.

However, this is clearly not enough to reverse the trend. Traders are waiting for the central macroeconomic report to be released on Friday, particularly, Nonfarms, which will either support or reject the US currency. Let me remind you that the July Non Farms were on the side of the dollar: almost all the components of the release came out positively, exceeding experts' forecasts. In connection to this, the unemployment rate fell to 10.2% (the forecast was at the level of 10.5%), and the number of people employed in the non-agricultural sector increased by 1 million 763 thousand (against the growth forecast by 1.5 million). The only disappointing one was the manufacturing sector of the economy – the increase in the number of people employed in this area amounted to only 26 thousand, although analysts expected to see this figure much higher, at around 250 thousand.

Such dynamics allowed the bears of EUR/USD to gain more than 150 points. The rates are higher this time, given the Fed has revised its inflation control policy. In my opinion, traders will focus their attention primarily on the dynamics of wage growth, since inflation indicators will be under special focus in the near future. According to preliminary forecasts, wages will show negative dynamics: they are expected to decline to zero in monthly terms and to 4.5% in annual terms. If the forecasts coincide with reality, the dollar will be under significant pressure again. Considering that it moved to the "red zone", the EUR/USD pair can retest the 20th figure. As for the other elements of Nonfarm, the experts are also not too optimistic. For example, the number of people employed in the non-agricultural sector should increase by 1.5 million people, while in July, this figure increased by 1.7 million. The unemployment rate should remain within 10%.

But all this will be discussed on Friday. Today, we will receive a report on the US labor market from the ADP agency. The response to today's report from ADP may be limited. According to preliminary forecasts, it will be released at the level of 1.25 million. In general, this forecast coincides with the forecast for the growth in the number of employed in the non-agricultural sector, that is, with the forecast of the "official" Nonfarms. Therefore, in this case, the market may completely ignore the release. If today's indicator goes much lower than the designated level, the correction may end ahead of schedule.

Technically, the pair on the daily chart is currently heading towards the middle line of the Bollinger Bands indicator, which coincides with the Kijun-sen line (1.1840 level). We should focus on this area. If the EUR/USD bears overcome this target, then the next "stop", that is, the support level in the 17th figure, namely at 1.1730 (the lower line of the Bollinger Bands in the same time frame). But when the downward impulse fades, long positions can be considered, since the dollar in the medium term will still be under pressure due to the updated Fed's policy. The upward target, in turn, remains at 1.2000.