08.12.202310:31 Forex Analysis & Reviews: Traders' reactions to US non-farm employment data is hardly predictable

The euro and the pound sterling may continue to decline if the US Labor Department report surprises traders. According to economists, the unemployment rate in the US will rise in November as the economy begins to slide into a recession. The data will also influence the future monetary policy of the Federal Reserve, as a strong and stable labor market remains a concern for the regulator. The fact is that it may boost the risks of an inflationary spike feared at year-end.

Thus, the unemployment rate may increase to 4% from 3.9%. The figures may also indicate a temporary recovery in employment thanks to the resolution of two major strikes. However, finding a job has become increasingly challenging for job seekers lately, and prolonged strikes typically lead to a rise in the unemployment rate. Recessionary risks should not be overlooked either.

It is obvious that the creation of new jobs in the second half of the year has slowed down as employment among key working-age groups has returned to pre-pandemic levels, slowing wage growth, which is a significant factor that may affect inflation.

Regarding forecasts for employment growth in the non-farm sector, recent decisions by the United Auto Workers, actors' unions, and the American Federation of Television and Radio Artists increased the overall count of new jobs by 41,000, potentially totaling 161,000 new jobs. However, analysts do not foresee significant growth in the number of new jobs in other sectors due to declines in manufacturing and finance.

If the data turns out worse than anticipated, the Federal Reserve's rate hike in July of this year is likely to be the last in the historically rapid cycle of monetary policy tightening. Investors increasingly bet that the central bank will start lowering rates in March next year, and weak US labor market data will contribute to this idea.

Many traders suppose that the Fed will follow a softer landing plan and cut rates in the first quarter of next year. However, the longer the regulator delays this, the more significant the impact on the labor market will be, thus making a hard landing the most likely scenario.

Yesterday, some risky assets resumed gaining in value amid expectations of slower growth in the US labor market. However, the expected data will determine how long this rise will continue.

Talks about maintaining a tough stance by the Fed have been ongoing since early December. Since then, the EUR/USD pair has been falling. As for the technical picture, buyers now need to regain control over the 1.0780 level. To do so, they should quickly touch 1.0810. From this level, it is possible to climb to 1.0840, but doing so without the support of major players will be quite challenging. The final target will be around 1.0870. In case of a decline, buyers are likely to become active only around 1.0750. Otherwise, it would be better to wait for an update of the low at 1.0720 or open long positions from 1.0670.

As for the outlook for the GBP/USD pair, a bullish trend will hardly prevail. Trading continues around the 26th figure, and until buyers regain control over this level, an upward movement is uncertain. Consolidation at 1.2610 will restore bullish potential with a breakout to 1.2650, leaving room for a potential update to 1.2680. After that, a more pronounced surge of the pound towards 1.2725 can be expected. If the pair declines, bears will attempt to take control of 1.2545. In case of success, a breakout of the range will affect bullish positions, pushing GBP/USD towards the low of 1.2500 with the prospect of reaching 1.2450.