Job gains expected to slow sharply in October

• US Nonfarm Payrolls are expected to rise by 113K in October after September’s stellar gain of 254K.
• The United States Bureau of Labor Statistics will release the labor data on Friday at 12:30 GMT.
• The US Dollar’s fate and the Fed’s future interest rate cuts hinge on the US jobs data.

All eyes are on the market-moving Nonfarm Payrolls (NFP) data for October, to be released by the United States Bureau of Labor Statistics (BLS) on Friday at 12:30 GMT.

US labor market data is critical to determining the Federal Reserve’s (Fed) future interest-rate cuts and has a significant influence on the value of the US Dollar (USD) against its major rivals.

What to expect in the next Nonfarm Payrolls report?

Economists expect the Nonfarm Payrolls to show that the US economy added a meager 113,000 jobs in October, following a strong gain of 254K in September.

The Unemployment Rate (UE) is likely to remain steady at 4.1% in the same period.

Meanwhile, Average Hourly Earnings (AHE), a closely-watched measure of wage inflation, are expected to increase by 4.0% in the year through October, at the same pace seen in September.

The October jobs report is eagerly awaited for fresh hints on the Fed’s interest rate path, especially as industry experts and analysts speculate that the Fed could pause its easing cycle next month on a blockbuster Nonfarm Payrolls print.  

However, downside risks to the jobs data persist, as it is likely to be distorted by the two recent hurricanes and the strike at Boeing.

Previewing the October employment situation report, TD Securities analysts said: “The November NFP report is set to be extremely noisy, but we expect a below-consensus 70k gain. High-frequency labor market data already shows some softening, and Hurricanes and the Boeing strike may subtract a further 80k from the reading.”

“We expect the UE Rate to rebound to 4.3% from 4.1% as the decline was likely overstated, but for AHE to rise 0.4% MoM amid distortions,” they added.

How will US October Nonfarm Payrolls affect EUR/USD?

Before the Fed entered its ‘blackout period’, several policymakers supported further interest rate cuts while warranting caution on the inflation outlook, echoing the US central bank’s data-dependent approach.

At the time of writing, markets are fully pricing in a 25 basis points (bps) Fed rate cut in November, with about a 70% probability of another quarter percentage point reduction in December, according to CME Group’s FedWatch tool.

The USD has been capitalizing on US economic resilience and odds of a less aggressive Fed’s easing cycle leading into the NFP showdown on Friday.

Earlier in the week, the BLS reported that the JOLTS Job Openings declined to 7.44 million in September from 7.86 million in August. This reading came in below the market expectation of 7.99 million but failed to alter the market’s pricing for November’s rate cut move. 

The Automatic Data Processing (ADP) announced on Wednesday that employment in the US private sector increased by 233,000 jobs for October, accelerating from the upwardly revised 159,000 in September and better than the market estimate of 115,000. Even though these figures aren’t always correlated with the official NFP numbers, the strong ADP jobs report eased concerns about the health of the US labor market, leaving room for an upside surprise in Friday’s payrolls data.

If the headline NFP reading surprises with a payroll growth below 100,000, it could trigger a fresh knee-jerk US Dollar selling wave. However, the Greenback is expected to resume its recent uptrend against its major rivals as the dust settles and markets digest the noisy data due to hurricanes and strikes. In such a scenario, EUR/USD traders will brace for a whipsaw within a familiar range.

Conversely, a stronger-than-expected NFP print and elevated wage inflation data would seal in a rate reduction by the Fed next week, providing extra legs to the USD uptrend while dragging EUR/USD back toward 1.0700.

In conclusion, the reaction to the US labor data may be short-lived, with the Greenback expected to continue its advance.

Eren Sengezer, European Session Lead Analyst at FXStreet, offers a brief technical outlook for EUR/USD: 
“Once EUR/USD stabilizes above 1.0870, where the 200-day Simple Moving Average (SMA) is located, and starts using this level as support, it could gather bullish momentum. On the upside, 1.0940 (100-day SMA) could be seen as the next hurdle before 1.1000-1.1010 (round level, 50-day SMA).” 

“On the flip side, technical sellers could emerge if EUR/USD fails to clear the 1.0870 hurdle. In this scenario, 1.0800 (round level) could be seen as interim support before 1.0670 (static level from June).”