FX.co ★ EUR/USD: Week Preview. Non-Farms and Geopolitics

The upcoming week promises to be informative and, consequently, volatile. The shutdown has ended, allowing the U.S. Bureau of Labor Statistics (BLS) to publish official macroeconomic statistics as data becomes available. Since October 1, when the American government was suspended, the BLS has published only one report – the CPI for September. Now, the market eagerly awaits the release of the remaining inflation indicators (PPI, PCE) and, of course, the employment data—Non-Farms. All other fundamental factors will take a back seat.

As of now, the September NFP report, initially scheduled for release on October 3, will be published on Thursday, November 20. Preliminary forecasts indicate that unemployment in September should remain at August's level (4.3%), while non-farm employment is expected to increase by 50,000. The growth rate of average hourly earnings is projected to remain at August's level of 3.7%.

The following day, November 21, the BLS will release the September real earnings report, which was initially scheduled for publication on October 15.

The release date for the September core PCE index remains uncertain. Representatives from the BEA (Bureau of Economic Analysis) stated on Friday that they are "working on updating the schedule for the release of economic data." We will learn when the BEA will publish one of the key inflation indicators.

The October Non-Farms report and the CPI/PPI growth reports for October are also in question. According to White House Press Secretary Caroline Levitt, the October labor and inflation reports "may never be published" due to the aftermath of the shutdown.

In the coming days (likely in the first half of the upcoming week), BLS representatives should clarify which data will be released and which will not.

Among all the scheduled releases, the Non-Farms report carries the most weight. If the report comes in weaker than expected, the market will again discuss the prospects of a Fed rate cut at the December meeting. This scenario seems quite probable given the disappointing September ADP report, which showed a decline of 29,000 jobs. This is a concerning signal, although the ADP reports and Non-Farms do not always correlate. Additionally, reports from recruitment agencies reflected a bleak picture, with the Challenger, Gray & Christmas report indicating that U.S. companies cut 153,000 jobs in October.

In other words, the market is "mentally prepared" to see a weak result. Therefore, if key components of the report come in at forecast levels, the dollar could rally even though the projected outcome would indicate a cooling labor market.

However, if the Non-Farms figures disappoint (for example, if the increase in employed persons falls below 50,000), the market will start to price in a possible rate cut by the end of the year. Consequently, the dollar would come under pressure again.

All other macroeconomic reports are of secondary importance. Even the FOMC minutes, which will be released on Wednesday (November 19), will remain overshadowed by the Non-Farms report. Since the October meeting, there have been too many new inputs, making the minutes of this meeting less relevant.

Geopolitics may also play a role, given the heightened tensions between China and Japan. Last week, Japanese Prime Minister Satsuki Takaito stated that the use of military force by China against Taiwan could be perceived by Japan as a "situation threatening the survival of the country." Formally, such classification gives Tokyo a legal basis for intervention. Beijing reacted sharply to these comments: the Chinese Foreign Ministry summoned the Japanese ambassador, demanding the "retraction of the outrageous statements" made by the Japanese PM. In turn, the Chinese Ministry of Defense threatened Tokyo with "military destruction" in the event of interference in Taiwan affairs.

Against this backdrop, four armed Chinese coastguard ships entered Japanese territorial waters today and navigated around the disputed Senkaku Islands (Chinese name: Diaoyu Island).

If the escalation continues, risk-averse sentiment in the market will increase, and the safe-haven dollar will enjoy heightened demand regardless of the macroeconomic report outcomes.

Thus, the upcoming week will be pivotal for the greenback. The scale may tilt toward either the "dovish" scenario or a hold position. The direction of the dollar and the EUR/USD pair will depend on which scenario becomes dominant. Currently, uncertainty prevails in the pair, exacerbated by the escalating tensions between Japan and China.

From a technical standpoint, the EUR/USD pair is positioned between the middle and upper lines of the Bollinger Bands indicator, above the Tenkan-sen and Kijun-sen lines, but below the Kumo cloud. The buyers have not managed to consolidate above the lower boundary of the cloud, specifically the 1.1650 level. This resistance level has proven challenging for the bulls, leading the pair to end Friday's trading at 1.1620. Long positions should only be considered after the price breaks this barrier. In such a case, the next target for upward movement would be the 1.1700 level, which corresponds to the upper boundary of the Kumo cloud on the daily chart. However, in anticipation of the Non-Farms report, traders are likely to remain cautious, meaning the EUR/USD pair will fluctuate within the price range of 1.1580 – 1.1660 (with the middle line of the Bollinger Bands aligning with the lower boundary of the Kumo cloud on D1), a range it has traded in over the past week.