FOREX Fundamental analysis on September 2, 2022
Everyone who gets in the way of the Fed will sooner or later be crushed. This includes stock indices, which have collapsed to a 5-week bottom, and debt bonds, whose sell-offs have lifted yields to a 2.5-month high. And of course the EUR/USD, whose upside attempt on the back of lower gas prices turned into another decline.
The decline of jobless claims and the simultaneous growth of the index of business activity in the U.S. manufacturing sector showed that the recession risks were exaggerated. There is nothing stopping Jerome Powell's team from raising rates to the 3.5%-4.0% range and keeping them at those levels for as long as it takes to beat inflation. And with rising Treasury yields, even a weak Non-farm Payrolls report is unlikely to hurt the greenback.
And the report promises to be quite good. Analysts expect unemployment to remain at 3.5% and employment to grow by 300,000 jobs. If the actual figures coincide with the forecasts, the Fed may raise the rate by 75 basis points at once in September without any consequences. In any case, the probability of this step is estimated at 74%.
If the statistics come out even better, the greenback will strengthen even more. And what if NFP fails the investors? Most likely, the result will be in favor of the dollar again. The fact is that Jerome Powell has repeatedly stated that the Fed is willing to sacrifice economic performance and labor market stability for further tightening of monetary policy. In other words, the regulator won't pay attention to the release unless it shows catastrophically low values. But there is no reason to do so.
It turns out that a good Non-farm Payrolls, or even slightly worse than forecasted, will still support the dollar, which, oddly enough, may turn out to be a loss for the sellers' traders. After all, when everyone is selling, the big players start going against the crowd. And this scenario is already built into the price of the pair. I think that the EUR/USD decline after the release of the American labor market report can be used for buying.