02.10.202018:05 Forex Analysis & Reviews: EUR/USD: sluggish eurozone's inflation and controversial US nonfarm payrolls

The economic news released today discouraged both the bulls and bears. None of them found support from macroeconomic metrics. As a result, the currency pair is still treading water. The US dollar gained a minor advantage, though the pair showed a downtick. Both the euro and the US currency are vulnerable. So, traders are hesitant to open both long and short positions.

European inflation disappointed in the first half of Friday. Both the headline indicator and the core CPI entered the "red zone", having failed to reach the weak forecast values. Thus, the headline consumer price index remained in the negative area, falling to the level of -0.3%. The indicator was at such lows for the last time in March 2015, that is, more than five years ago. The core consumer price index (excluding volatile energy and food prices) showed similar dynamics, dropping to 0.2%, defying the forecast for 0.5% climb, the weakest growth rate on record.

In response to this release, EUR/USD dropped to almost 1.17 and even tested a lower level but quickly rebounded. Firstly, the market was ready for such downbeat scores, especially after the release of data on sluggish inflation in Germany. Let me remind you that in Germany the consumer price index also remained in the negative area - both in annual and monthly terms. Indicators also entered the "red zone", signaling similar trends on a pan-European scale.

The predictions came true: Germany's inflation seen as a barometer for the whole euro area confirmed its status and at the same time softened the blow from the European figures. In addition, immediately after the release, the published data was commented on by Vice President of the ECB Luis de Guindos. He reacted rather cautiously to the situation, noting that inflation in the eurozone is likely to remain in the negative territory until the end of this year. However, he expressed confidence that the recovery will take place in the first half of next year. Gindos also explained that prices are falling mainly due to low energy prices and weak consumer demand. In other words, the ECB vice-president reacted rather calmly to the inflation anti-records set today, allowing the buyers of EUR/USD to hold the upper hand in anticipation of the US Nonfarm payrolls.

In turn, the US data on the labor market left a mixed impression. In general, American Nonfarm payrolls bring a surprise: as a rule, one of the components defies the expected levels, disclosing the ambiguity of the situation. Therefore, the first reaction of the market is often false: traders evaluate the significance of one or another indicator in the context of other indicators and in the end make their own "verdict". Today the situation is similar. On the one hand, there is a decrease in unemployment and an increase in the number of people employed in the public and private sectors. On the other hand, there are all the other components that fell short of the projected values.

Thus, the number of people employed in the non-agricultural sector increased by 660 thousand, while analysts expected this indicator to be much higher - almost at the level of a million (980 thousand). Wages also disappointed, which turned out to be much worse than the expected values. Average hourly earnings fell to 0.1% on a monthly basis, while traders expected to see it at 0.5%. In annual terms, the index also slowed down. This suggests that inflation is unlikely to gain momentum in the near future.

However, today's release also had a positive side. The unemployment rate, which dropped to 7.9%, was a kind of "spoonful of honey". The increase in the number of people employed in the private sector of the economy amounted to 877 thousand, better than the forecast of growth by 850 thousand). In the manufacturing sector, this figure jumped immediately by 66 thousand (according to forecasts, it should have been twice as low).

Thus, today's macroeconomic reports could not clear up market sentiment on EUR/USD. By and large, the price remained in the same trading range within the corridor 1.1620-1.1830 (the lower line of the BB and the upper border of the Kumo cloud in the daily chart). The news that Donald Trump is tested positive for COVID-19 forced traders to be cautious. As a result, the pair has been drifting at near 1.17, waiting for the next information drivers.

It is risky to open any deals today, as the market has already responded to the published data. By Monday, the fundamental background for the pair may change significantly. Trading sentiment will depend on how Trump's coronavirus disease progresses, on the results of negotiations between the Republicans and Democrats over a new stimulus package, as well as on the outcome of negotiations between the British Prime Minister and the head of the European Commission. As you can see, the weekend is expected to be packed with events. So, EUR/USD is likely to open with a gap on Monday. The question is open whether it will be upward or downward. The events of the coming days may determine the trajectory of EUR/USD in the medium term.