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The first week of August promises to be less busy compared to the previous weeks of July. Behind them are the meetings of the Fed and the ECB, the releases of data on the growth of inflation in the US and Europe and the speech of Jerome Powell in Congress.
August is a more "empty" month in this regard. For example, the members of the regulators have gone on summer vacation – the next meetings of the Federal Reserve and the European Central Bank will be held only in September. The most important event of this month is an economic symposium in the American town of Jackson Hole. During this event, which is scheduled for the end of August, representatives of the Central Bank and governments of leading countries of the world will speak. It is expected that at this symposium, Jerome Powell will report on the future of the stimulus program. He will either hint at a possible curtailment of QE as early as 2021, or take a wait-and-see attitude. The key macroeconomic data that will be published on the eve of this conference will play an important role in this context.
That is why the July NonFarm Payrolls (the release is scheduled for Friday, August 6) can provoke increased volatility for the EUR/USD pair. Data on the US labor market is important in itself, but now the fate of QE is at stake. We will know the August figures in early September, that is, after the economic symposium, so Powell will operate with the data that will be published on August 6.
It should be noted that the unemployment rate in the United States rose slightly in June, reaching 5.9%. The increase in the number of people employed in the manufacturing sector of the economy was also disappointing – instead of the expected growth to 28 thousand, the indicator increased by only 15 thousand. But in general, the American labor market has developed its speed. The number of people employed in the non-agricultural sector increased by 850 thousand, although the average forecast was at the level of 700 thousand. The latest result is the best result since August last year, when the US economy produced one and a half million jobs. And here it is also necessary to pay attention to the trend: the indicator has been consistently growing for the past two months: if 278 thousand jobs were created in April, then in May – 580 thousand, and in June – 850 thousand. According to preliminary forecasts, the positive trend will continue in July – the number of people employed in the non-agricultural sector should grow by almost 900 thousand. But the unemployment rate, on the contrary, should fall to the level of 5.7%, approaching pre-crisis values. The indicator of the average hourly wage may also show a positive trend (+0.4% mom and +3.9 YoY).
If the July NonFarm Payrolls come out at the level of forecasts (and even more so-in the "green zone"), the dollar will receive significant support, as the market will again talk about an early curtailment of QE. So, some experts admit the possibility that the Federal Reserve will begin to prepare the markets for such a step in September. Other analysts are more optimistic. In their opinion, Jerome Powell will announce the corresponding signals at the end of August, during his speech in Jackson Hole. Strong NonFarm Payrolls will increase the probability of implementing one of the above scenarios.
Friday's release is the most important for the EUR/USD pair. But, as they say, "the market does not live by the NonFarms alone". For example, today, on the first trading day of the week, the ISM manufacturing index will be published. This indicator should reach 60.8 points, that is, almost at the same level as in the previous month (60.6). Therefore, the market will react to this release only in case of a significant deviation from the forecast value.
On Tuesday, August 3, the economic calendar for the EUR/USD pair is almost empty. Of all the planned events, we can single out the speech of the Fed representative Michelle Bowman. Earlier, she stated that the increase in inflation is temporary, so the regulator should not rush to decisions regarding QE. However, Bowman made this statement even before the last inflation release, so it is likely that on Tuesday she may tighten her rhetoric by supporting the dollar.
On Wednesday, August 4, during the American session, the index of business activity in the services sector from ISM and the report on the labor market from the ADP agency will be published. The ISM non-manufacturing index should reflect the minimum increase relative to the previous month (60.5 in July compared to 60.1 in June). As for the ADP report, positive dynamics is also expected here. According to forecasts, the number of people employed in the private sector should grow by 700 thousand in July.
On Thursday, August 5, we should pay attention to the speech of a member of the Fed Board of Governors, Christopher Waller. He recently said that the US regulator will most likely have to start reducing the asset repurchase program this year, "in order to be able to start raising the base rate by the end of next year." If it confirms the above position again, the dollar will receive significant support.
From the technical point of view, the pair on the D1 timeframe is located between the middle and upper lines of the Bollinger Bands indicator, above the Tenkan-sen and Kijun-sen lines, but under the Kumo cloud. Thus, the Ichimoku indicator formed a "Golden Cross" signal, which signals an increased probability of a trend change. The key resistance level is 1.1890 (the upper line of the Bollinger Bands on the same timeframe). If the corrective growth in this price area fades, we can consider short positions with the first target of 1.1810, which is the average line of the Bollinger Bands indicator.
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