Euro clings to gains near three-week highs ahead of the US Nonfarm Payrolls report

EUR/USD consolidates near 1.1530 with three-week highs, at 1.1559 0on sight.
US Dollar bulls remain subdued, awaiting US Nonfarm payrolls data.
German Industrial Production increased in June, but the trade surplus narrowed beyond expectations.

The Euro (EUR) is trading flat, a handful of pips below 1.1530 against the US Dollar (USD) on Friday, following a mild pullback from three-week highs at 1.1560 earlier on the week. The US Dollar is showing a moderately stronger tone although investors remain wary of placing large directional bets, awaiting the release of July's Nonfarm Payrolls (NFP) report, due later on the day.

The market consensus anticipates an 80K increase in net employment in July, although some market experts see chances of another disappointment.

Economists at Deutsche Bank expect only a modest improvement to 65K forecast vs.June's 57K, arguing that July's figures “would put the latest readings below the 3- and 6-month moving averages, consistent with the recent slowing in the weekly ADP reports,” underscoring a gradual loss of momentum in hiring even as the labour market remains resilient.

Eurozone data fails to support the Euro

In the Eurozone, data released by the German Federal Office of Statistics on Friday revealed that Industrial Production rose 0.2% in June, down from May's 0.7% increase, but above the 0.1% market consensus. At the same time, German Trade Balance data showed that June's surplus narrowed to EUR 15.4 billion from an upwardly revised EUR 19.4 billion surplus in May, well beyond the EUR 17.4 billion surplus expected by the market.

The safe-haven US Dollar drew some support from growing doubts about a peace deal in Iran and the reopening of the Strait of Hormuz during previous sessions. Iranian Fars news agency reported on Thursday that Tehran would be considering a plan to ban Israeli and US vessels from the Strait, an idea which collides with the US will to keep the waterway free of tolls or restrictions of any sort.

Apart from that, the Financial Times, citing sources close to the US Federal Reserve, reported that Chairman Kevin Warsh is ready to hike interest rates as soon as September, if inflation remains persistently high, which provided additional support to the Greenback

Economic Indicator

Nonfarm Payrolls

The Nonfarm Payrolls release presents the number of new jobs created in the US during the previous month in all non-agricultural businesses; it is released by the US Bureau of Labor Statistics (BLS). The monthly changes in payrolls can be extremely volatile. The number is also subject to strong reviews, which can also trigger volatility in the Forex board. Generally speaking, a high reading is seen as bullish for the US Dollar (USD), while a low reading is seen as bearish, although previous months' reviews and the Unemployment Rate are as relevant as the headline figure. The market's reaction, therefore, depends on how the market assesses all the data contained in the BLS report as a whole.

Why it matters to traders?

America’s monthly jobs report is considered the most important economic indicator for forex traders. Released on the first Friday following the reported month, the change in the number of positions is closely correlated with the overall performance of the economy and is monitored by policymakers. Full employment is one of the Federal Reserve’s mandates and it considers developments in the labor market when setting its policies, thus impacting currencies. Despite several leading indicators shaping estimates, Nonfarm Payrolls tend to surprise markets and trigger substantial volatility. Actual figures beating the consensus tend to be USD bullish.

Economic Indicator

Unemployment Rate

The Unemployment Rate, released by the US Bureau of Labor Statistics (BLS), is the percentage of the total civilian labor force that is not in paid employment but is actively seeking employment. The rate is usually higher in recessionary economies compared to economies that are growing. Generally, a decrease in the Unemployment Rate is seen as bullish for the US Dollar (USD), while an increase is seen as bearish. That said, the number by itself usually can't determine the direction of the next market move, as this will also depend on the headline Nonfarm Payroll reading, and the other data in the BLS report.