Despite the stronger US jobs numbers, the price of the euro currency pair against the US dollar EUR/USD succeeded in closing a bullish weekly around the resistance level of 1.0600. At the beginning of the same week it was on its downward path, rushing towards the support level of 1.0448, its lowest during the trading of the year 2023. The attention of investors and markets this week will turn to the US inflation numbers and the content of the minutes of the last meeting of the US Federal Reserve.
On the other hand, US stocks initially declined after a report showed that US employers added nearly twice as many jobs last month as economists expected. The strength has raised concerns that an extremely hot US labor market could keep upward pressure on inflation, which in turn could prompt the Federal Reserve to keep US interest rates higher than investors want. Meanwhile, Treasury yields jumped after the report was released, with the yield on the 10-year Treasury note rising again to its highest level since 2007. It was at 4.78%, up from 4.72% late Thursday.
In general, Wall Street markets hate high interest rates because they drag down the prices of all types of investments. Although the labor market has not yet faltered, and although the Federal Reserve has pulled its key interest rate to the highest level since 2001, higher interest rates are extinguishing high inflation by slowing the entire economy. This increases the risk of future recession.
But Treasury yields pared their gains, especially short-term ones, as economists pointed to some encouraging data in the jobs report. The two-year Treasury yield closely followed expectations for action by the Federal Reserve, quickly rising from 5.04% just before the jobs report to 5.20% shortly afterward. Then it decreased to 5.08%.
Among the potentially encouraging signs for the Fed: Average workers' wages rose at a slower rate in September than economists expected. While this discourages workers trying to keep up with inflation, it may remove some of the tendency for companies to continue raising the prices of their products. According to the official announcement, the average hourly wage increased at the slowest rate, on an annual basis, since June 2021.
This increases the risks in reports coming this week on consumer and wholesale inflation. These are the next big data points due before the Fed makes its next interest rate announcement on November 1. In this regard, some economists said that the US Federal Reserve may not need to do much regarding the overnight interest rate after the financial markets have already done some of their work for it. The 10-year Treasury bond is the focus of the bond market and has already jumped sharply from less than 3.50% over the summer and from just 0.50% early in the pandemic.
A rise in the yield on ten-year bonds raises interest rates on mortgages and all other types of loans, which can suppress the economy and inflation. Overall, a strong labor market also holds some rewards for financial markets in the short term. This means that the economy is still in good shape despite rising interest rates, which may support corporate profits.
Expectations for the euro against the dollar today:
- According to the performance on the daily chart below, the price of the EUR/USD currency pair has not yet broken the general downward trend.
- This may happen if the bulls move in the currency pair towards the resistance levels of 1.0665 and 1.0830, respectively.
- The psychological support of 1.0500 was broken, returning the bears to strong control again and preparing for lower numbers.
- At the same time, technical indicators are moving towards strong oversold levels.
- This is especially true if the US inflation numbers and the content of the minutes of the last meeting of the US Federal Reserve support more US interest rate hikes.
Ready to trade our daily Forex forecast? Here’s a list of some of the best regulated forex brokers to check out.
