• Non-farm payrolls in the U.S. are expected to reach 185,000 in May, data seems to be hit or miss.
• The US jobs report may influence the Federal Reserve’s decision next week.
• The US dollar enters this event with a delicate tone that still lacks directional momentum.

The United States (US) will release its May nonfarm payrolls (NFP) report on Friday at 12:30 GMT. Ahead of the event, the country released a slew of employment data that anticipates gentle headline NFP data.

Moreover, the European Central Bank (ECB) announced its decision on monetary policy on Thursday. As widely expected, the central bank cut interest rates by 25 basis points (bps) each, with the main refinancing operation, central bank lending and central bank deposit rates falling to 4.25%, 4.5% and 3 .75% respectively. European decision-makers, however, issued a rather hawkish message, limiting the fall of EUR/USD after such an aggressive decision.

What can you expect in the next Nonfarm Payrolls report?

The NFP report is expected to show that the US economy added 185,000 jobs in May. modern jobs, compared to 175 thousand obtained in April. The unemployment rate is expected to remain stable at 3.9%, while average hourly earnings, a measure of wage inflation, are expected to augment 0.3% in the month from a previous level of 0.2%. The annual reading is forecast to remain unchanged at 3.9%.

Throughout the week, the United States released its April Job Openings and Labor Turnover Survey (JOLTS), which showed that the number of job openings on the last business day of the month was 8.059 million, lower than the downwardly revised figure of 8.35 million recorded in March. Additionally, the Automatic Data Processing (ADP) study showed that the private sector created 152,000 jobs in May. modern positions, i.e. below the 173,000 expected by market participants. and weakening compared to the previous 188 thousand. More significantly, the ADP report showed that annual compensation increased by 5%.

ADP Chief Economist Nela Richardson said: “Job growth and wage growth are slowing in the second half of the year. The labor market is solid, but we are monitoring noticeable areas of weakness on both the producer and consumer sides.”

Finally, in the week ending May 31, the number of initial jobless claims increased by 229,000, which was worse than the expected 220,000. and higher than the previous weekly augment of 221,000.

Data released ahead of the NFP report showed that price pressures remain high while the labor market is relaxing somewhat, which is not enough to twist the arms of Federal Reserve (Fed) officials.

It is worth recalling that the central bank has a dual mission: to achieve maximum employment and maintain stable prices. But Fed policymakers said an easing labor market would actually lend a hand them move away from tight monetary policy.

On the inflation front, the latest report on the Personal Consumer Expenditures Price Index (PCE), the Fed’s favorite inflation gauge, showed it held steady at 2.7% YoY in April, according to the U.S. Bureau of Economic Analysis (BEA). On a monthly basis, the PCE price index increased by 0.3% as expected, although the monthly headline data was slightly lower than expected, up 0.2%.

The Federal Open Market Committee (FOMC) is widely expected to keep the funds rate unchanged at between 5.25% and 5.50%, while speculative interest rates predict a rate cut in September at the earliest. The Fed is also expected to begin reducing the pace of withdrawing assets from its balance sheet.

How will the US non-farm payrolls report impact EUR/USD?

Overall, a mighty headline reading coupled with increased wage pressure will be seen as further delaying interest rate cuts and result in a stronger US dollar. On the contrary, a very disappointing report combined with easing wages may cause the USD to accelerate its decline, as the market will perceive it as a greater chance for an imminent interest rate cut.

EUR/USD is trading just below 1.0900 following the ECB’s monetary policy decision and ahead of the NFP release. In early June, the pair peaked at 1.0915, having consistently seen sellers on highs above the 1.0900 level since mid-March.

Valeria Bednarik, Chief Analyst at FXStreet, states: “Market participants seem willing to push EUR/USD higher but are still undecided. It seems clear that interest in buying the US dollar is quite restricted. Technically, the pair needs to clear the 1.0910 area to continue higher, with intermediate resistance at around 1.0950 ahead of the 1.1000 price zone. The bearish move appears more challenging and the decline appears more cluttered, with no clear breakout point until 1.0790. Below the latter, the pair may move towards 1.0700, but the key to success seems to be buying the dips, and further declines seem unclear.