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FX Week Ahead – Top 5 Events: August US Jobs Report & EUR/USD Rate Forecast

FX Week Ahead – Top 5 Events: August US Jobs Report & EUR/USD Rate Forecast

2019-08-31 21:04:00
Rich Dvorak, Analyst
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AUGUST US JOBS REPORT & EURUSD PRICE OUTLOOK:

  • The August US jobs report slated for Friday’s trading session looks to strongarm EURUSD price action as it sways the market’s Fed rate cut expectations
  • The US Dollar could slip from recent highs if downside risks surrounding the trade war and slowing global growth show signs of weighing on US employment gains
  • Read more on EURUSD volatility spiking around the monthly US nonfarm payroll employment data release

The August US jobs report scheduled for release this coming Friday at 12:30 GMT will cap off next week’s jam-packed economic calendar. Forex traders will likely turn to the August nonfarm payrolls (NFP) figures for clarification on the direction of spot EURUSD after a noisy week of data releases. This is due to the assumption that markets stand to react more sharply to employment data seeing that it has a greater probability of impacting Federal Reserve monetary policy and thus the US Dollar.

TOTAL CHANGE IN US NONFARM PAYROLL EMPLOYMENT DATA HAS TRENDED LOWER

US Nonfarm Payrolls Monthly Change Historical Data Chart

The headline August NFP number is expected show 158,000 job additions for the US economy according to Bloomberg’s median economist estimate. While America’s labor market and economy as a whole have shown resilience in light of slowing global GDP growth, a clear downtrend in job creation has emerged since the US-China trade war heated up last year. With the US-China trade war escalating once over recent months, cracks may begin to emerge if American companies cut back on hiring.

That said, the Fed has communicated openness to providing more accommodative monetary policy as the July FOMC statement said that the central bank “will act as appropriate to sustain the expansion with a strong labor market” after cutting its policy interest rate 25-basis points for the first time in roughly a decade. Consequently, US Dollar price action is expected to be overwhelmingly driven by Fed rate cut expectations as the September FOMC meeting approaches.

US DOLLAR IMPLIED VOLATILITY & TRADING RANGES

US Dollar Implied Volatility and Trading Ranges EURUSD, USDJPY, GBPUSD, USDCAD, AUDUSD

As such, it comes as no surprise that US Dollar 1-week implied volatility measures have ticked higher ahead of the high-impact event risk faced by the US Dollar. Spot USDCAD is expected to be the most active major USD-pair next week with the September BOC meeting on deck. EURUSD 1-week implied volatility of 5.40%, below its 12-month average of 5.94%, seems interestingly suppressed in light of the August US jobs report that looms and considering the massive move recorded by spot EURUSD last week.

EURUSD 25-DELTA RISK REVERSAL (1-WEEK)

EURUSD Price Chart of 1 week risk reversal

Looking to EURUSD risk reversals, we see that currency option traders hold a downside bias toward spot prices next week and hints that EURUSD may continue to edge lower. This is suggested by a reading below zero which indicates put option demand outweighs that for call options.

EURUSD PRICE CHART: DAILY TIME FRAME (MAY 21, 2019 TO AUGUST 30, 2019)

EURUSD Price Chart Technical Analysis

Judging by EURUSD 1-week implied volatility of 5.40%, spot prices are estimated to gyrate between 1.0919-1.1057 with a 68% statistical probability. Spot EURUSD selling pressure accelerated quickly late last week after confirming a breakout from its bearish triangle pattern when the currency pair sank below the 1.1000 handle. Consequently, spot EURUSD may extend lower next week as the US Dollar continues to flex its muscles.

This bearish scenario could be solidified by another solid NFP report as it will likely keep Fed rate cut expectations at bay. On the contrary, weakness revealed in August’s US jobs report could encourage a retracement higher in spot EURUSD toward the upper-bound of its 1-week option implied trading range.

-- Written by Rich Dvorak, Junior Analyst for DailyFX.com

Connect with @RichDvorakFX on Twitter for real-time market insight

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