The United States (US) Bureau of Labor Statistics (BLS) is set to release October Nonfarm Payrolls (NFP) data on Friday at 13:30 GMT. The report is expected to show an increase of 65K jobs, up from 29K in the previous month.
Even though market participants widely expect the Federal Reserve (Fed) to raise the policy rate by 25 basis points (bps) in December, the underlying details of the employment report could impact how they perceive the policy outlook in early 2027 and drive the US Dollar’s (USD) valuation.
What to expect from the Nonfarm Payrolls report?
Investors expect NFP to rise by 65K in October, following the disappointing 29K increase recorded in September. The Unemployment Rate is forecast to remain unchanged at 4.2%, while the monthly wage inflation, as measured by the change in Average Hourly Earnings (AHE), is projected to rise to 0.3% from 0.1%.
The Fed left the policy rate unchanged at the range of 3.75%-4% after the October policy meeting, as anticipated. In the post-meeting press conference, Fed Chair Kevin Warsh described labor market conditions as “positive,” adding that the discussion among policymakers is focused mainly on the price stability mandate.
Hence, a noticeable shift in the market pricing of the Fed rate decision next month is unlikely unless there is a significant negative surprise in the employment data.
According to TD Securities, the US Dollar’s sharp rally since September is likely to give way to a period of consolidation into year-end.
The bank reiterates that “after a sharp rally since September, our base case has been for the USD to see a modest relief selloff into year-end, similar to how the USD had performed following the 2018 US midterm election.”
Strategists argue that incoming labour market data could be pivotal, noting that “a lower-than-consensus payrolls number could provide an additional catalyst for the USD retracement to take shape.”
In that context, they “expect October NFP to remain subdued at 40k after job gains moderated to 29k in September,” reinforcing the view that softer US data would help extend the Dollar’s post-election pullback.
How will the US October Nonfarm Payrolls affect EUR/USD?
The US Dollar came under heavy selling pressure midweek after Democrats won the Senate and the House in midterm elections, taking control of the US Congress in the last two years of Donald Trump’s presidency.
Growing optimism about a de-escalation of the conflict in the Middle East following the elections outcome triggered a sharp selloff in crude Oil prices as well, easing fears over persistent inflation.
Analysts at ING argue that the scope for a deeper Dollar correction remains constrained in the near term, pointing to “a still-resilient US economy and at least one more rate hike from the Federal Reserve” as key supports.
However, they also flag that the balance of risks could shift over the medium term, warning that “the Dollar could see a little more weakness into 2027, however, if an emboldened Democratic Party takes greater issue with Republican policy, including deregulation and the AI build-out.”
A disappointing NFP print at or below 30K could exacerbate the USD selloff heading into the weekend as it could cause markets to dismiss a Fed rate hike in January, which currently has a probability of around 20%, according to the CME FedWatch Tool. In this scenario, EUR/USD could build on its weekly gains.
Conversely, a considerable positive surprise, with an NFP reading above 80K, could support the USD with the immediate reaction and cause EUR/USD to correct lower. Nevertheless, investors could refrain from taking large positions ahead of next week’s US key inflation data, preventing the employment data from having a lasting positive effect on the USD.
Eren Sengezer, European Session Lead Analyst at FXStreet, offers a brief technical outlook for EUR/USD:
“The near-term technical outlook suggests that EUR/USD is struggling to complete a bullish reversal. The pair holds above the 20-day Simple Moving Average (SMA) but the Relative Strength Index (RSI) indicator on the daily chart stays slightly below 50.”
“On the upside, 1.1350 (static level, 50-day Simple Moving Average (SMA), former support) aligns as the first resistance level ahead of 1.1420 (100-day SMA). A daily close above the latter could attract technical buyers and open the door for an extended bullish action toward 1.1540 (200-day SMA).”
“Looking south, the first support level could be spotted at 1.1130 (lower arm of the Bollinger Bands) before 1.1000 (static level, round level).”
