The fears of many experts have been confirmed today: for the first time in a long time, NonFarm "summed up" the dollar, being in the red zone. Almost all components came out worse than expected, reflecting the slowdown in the labor market. Only the unemployment rate remained the same, record-low, 3.6%, but this fact served as a weak consolation for dollar bulls. The unemployment rate does not react so quickly to the current situation – this indicator refers to lagging economic indicators. Therefore, traders had to ignore it, focusing on other components of NonFarm.
By and large, traders were ready to reduce the labor market after the publication of an extremely weak report from the analytical agency ADP. According to them, the number of jobs in private US companies increased in may by only 27 thousand (with a growth forecast of 180 thousand) – this is the worst result in the last 9 years. It was a disturbing sign of weak NonFarm. For example, a month ago, the number of employed in the non-agricultural sector increased by 263 thousand (before the revision), while the ADP report showed an increase in the number of employed by 270 thousand.
The high level of correlation of these indicators warned market participants that the official figures in May may be much lower than the forecast values. So it happened: instead of an increase of 190 thousand (consensus forecast), the indicator grew by only 75 thousand. The number of employed in the private sector of the economy increased by only 90 thousand, while the forecast was at the level of 174 thousand (previous value – 205 thousand). The share of the economically active population also decreased slightly to 62.8%. In this case, the decline is minimal but still played a role, given the dynamics of other indicators.
The inflation component of NonFarm was also disappointed – the level of the average hourly wage. This is the most important indicator for the Fed increased by only 0.2% on a monthly basis and by 3.1% on an annual basis. In monthly terms, it comes out at the same level for the third month in a row, but in annual terms, the indicator fell for the first time since March. Such dynamics also corresponds with the weak growth of key inflation indicators. Core inflation in April remained near zero (0.1% m/m), and in annual terms – about two percent level, showing a downward trend. It is also worth recalling that the basic price index PCE in March rose by 1.6% year-on-year – this is the weakest growth in 14 months.
As already noted, the labor market was a reliable tool for the dollar. On the background of fluctuations of other key indicators, NonFarm always supported dollar bulls. Even in February, when the indicator came out at an abnormally low level (+33 thousand), traders "did not believe" the statistics, as it was clearly distorted by numerous strikes of American workers at that time. Now, the situation is radically different. In particular, the US Department of Labor today revised downward and previous figures – all figures were below the forecast of economists (in particular, April data were revised from 263 thousand to 240). In other words, we cannot talk about a temporary and momentary decline (as it was in February) – apparently, we are talking about a negative trend. In addition, traders are concerned about other alarming signals that are harbingers of a slowdown in US GDP. We are talking about weak reports in the areas of the housing market, retail sales, factory orders.
All this suggests that the American economy feels all the hardships of the trade war, the pace of which is only gaining momentum. Despite all the assurances of Donald Trump that America is the beneficiary of the situation, the figures suggest otherwise. And the Fed, in turn, will not be able to ignore this fact. Let me remind you that Jerome Powell during his last speech admitted the possibility of a rate cut, although he had previously ruled out such a scenario. I believe that after today's figures, the Fed's rhetoric will soften even more: it will prepare the markets for monetary policy easing. In other words, the data released today will only strengthen rumors that the Federal Reserve will reduce rates in the foreseeable future (most likely in the fall). And this fact will exert background pressure on the dollar throughout the market, including in the pair with the euro.
From a technical point of view, the situation is as follows. On the daily EUR/USD chart, the Ichimoku indicator's "Parade of lines" signal operates, and the pair is above the Kumo cloud and on the upper line of the Bollinger Bands indicator. The first level of support is the upper limit of the cloud, corresponding to the level of 1.1280. The main resistance level is at 1.1420 – this is the upper line of the Bollinger Bands indicator on the weekly chart, coinciding with the lower boundary of the Kumo cloud. If the rate of growth of the pair will continue next week, then achieving the above resistance level will be only a matter of time.