Forex News

• EUR/USD trades practically flat around 1.1250 after pulling back from session highs near 1.1270.
• The Euro is on track for a 1.26% weekly selloff, hit by France's fiscal concerns and high Oil prices.
• Eurozone inflation accelerated beyond expectations in September amid higher food and energy prices.

The Euro (EUR) is practically flat against the US Dollar (USD) on Friday, with the EUR/USD pair trading at the mid-1.1200s, still close to the 16-month low of 1.1210 hit on Thursday. Eurozone inflation figures have added pressure on the European Central Bank (ECB) to tighten its monetary policy further, but high Oil prices and increasing concerns about France’s fiscal health are keeping Euro buyers away.

September’s preliminary Harmonised Index of Consumer Prices (HICP) revealed that inflation accelerated to a 3.8% year-over-year (Y-o-Y) rate, from 3.2% in August, beating expectations of a more moderate increase to 3.6%. The report suggests that food and, most likely, energy prices are the main drivers for the rise, as the core HICP ticked up to 2.5%, from 2.4%, in line with market expectations.

Oil prices are pulling lower on Friday, with the barrel of Brent Crude retreating below the key $100 level amid reports that supplies from Gulf countries increased sharply in September. Crude Oil, however, has rallied more than 30% over the last three months and remains at levels that pose a critical risk to Eurozone economies.

The US Dollar rallies amid the global bonds' rout

The Greenback, however, keeps drawing support from risk-averse sentiment, amid the global bonds’ rout, which has pushed long-term US Treasury yields to their highest levels in 24 years. In Europe, concerns about France’s ballooning debt have sent the differential between the French and German government bond yields to fresh 14-year highs, above 140 basis points, spooking investors away from the Euro this week.

France’s public debt has reached levels unseen since the postwar period, which has boosted borrowing costs. The yield for the French 10-year government bond has surged more than 70 basis points in September to reach its highest level since 2002 and bring back echoes of the Eurozone’s 2009 credit crisis.

Investors’ focus will shift now to the release of the US Nonfarm Payrolls report, due later on the day. The market consensus anticipates 90K new jobs in September, with the Unemployment rate seen as steady at 4.1%. These figures would endorse expectations of further monetary tightening by the Federal Reserve (Fed), although recent inflation data have cooled expectations of an interest rate hike in October. 

Silver prices (XAG/USD) rose on Friday, according to FXStreet data. Silver trades at $61.24 per troy ounce, up 0.43% from the $60.98 it cost on Thursday.

Silver prices have decreased by 13.84% since the beginning of the year.

The Gold/Silver ratio, which shows the number of ounces of Silver needed to equal the value of one ounce of Gold, stood at 68.38 on Friday, down from 68.51 on Thursday.

(An automation tool was used in creating this post.)

ING’s Chris Turner argues that the French debt sell-off has broken the narrative of ever-higher short-term rates and raised doubts about further European Central Bank (ECB) tightening.

Debt stress drives Euro downside

"Markets reached a point of inflection yesterday, where the sell-off in French debt broke the narrative of ever-higher short-term market interest rates. This questions whether central banks are about to extend into policy error territory with tightening cycles. If that is the case, the ECB has less cause to tighten than the Fed, and EUR/USD can stay offered."

"My colleague, Francesco Pesole, wrote a nice article on how the market could easily add another 2% in risk premium to the euro if this bond market sell-off extends. And after the break of technical support yesterday, near-term EUR/USD looks biased to 1.1100/1120, if not closer to 1.10. We would expect upside corrections to be relatively shallow now."

"Investors assume that any ECB fix to the bond market sell-off either involves much less or no tightening of policy (euro bearish) or, in extremis, the use of the Transmission Protection Instrument to buy bonds (very euro bearish)."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)

Eurozone’s preliminary Harmonized Index of Consumer Prices (HICP) data for September arrives at 3.8% Year-on-Year (YoY), higher than 3.6% estimates and August’s final reading reading of 3.2%. On a monthly basis, inflationary pressures grew at a faster pace of 0.6% against the prior release of 0.4%.

The core HICP – which excludes volatile components like food, energy, alcohol, and tobacco – rises by 2.5% YoY, as expected, faster than the previous reading of 2.4%. Month-on-month core HICP grew steadily by 0.2%.

Market reaction

No significant movement is seen in the Euro (EUR) after the Eurozone HICP data release. As of writing, EUR/USD is up 0.1% to near 1.1250.

• USD/JPY declines to near 157.60 as the US Dollar Index corrects to near 101.88.
• Investors shift their focus to the US NFP data for September.
• Tokyo inflation data ex. Fresh Food, Energy accelerates to 3% YoY in September.

The Japanese Yen (JPY) trades higher against the US Dollar (USD) ahead of the United States (US) Nonfarm Payrolls (NFP) data for September, which will be published at 12:30 GMT.

In the European trade, the USD/JPY pair is down 0.3% to near 157.60 due to weakness in the US Dollar.  The US Dollar Index (DXY), which gauges the Greenback’s value against six major currencies, trades 0.15% lower to near 101.88. The DXY corrects from its yearly high of 102.20 posted on Thursday.

Analysts at OCBC wrote in a note that Bloomberg consensus expects "nonfarm payrolls to rise by 90,000 in September, down from 162,000 in August, while the unemployment rate is forecast to remain unchanged at 4.1%."

OCBC points out that "recent jobless claims data have continued to trend lower, suggesting labour market conditions remain firm." In their view, "the risk of an upside payrolls surprise appears to be increasing," and a "stronger-than-expected employment report would likely reinforce expectations of further Fed tightening, provide additional support for the USD."

On the Yen front, Tokyo’s Consumer Price Index (CPI) data for September remained stronger-than-projected. Tokyo CPI ex. Fresh Food jumps to 2.7% Year-on-Year (YoY) from 1.8% in August. The inflation data was seen at 2.4%. Tokyo CPI ex. Food, Energy accelerates at a significant pace to 3% YoY from the previous reading of 2%.

USD/JPY Technical Analysis

In the daily chart, USD/JPY trades at 157.61. The pair holds a mildly bullish near-term bias as spot trades above the 20-period exponential moving average (EMA) at 157.26, suggesting underlying demand on dips after the recent recovery from the mid-153s.

The Relative Strength Index (14) at 51.50 sits just above its neutral line, hinting at a steady, non-overextended upswing rather than aggressive trending conditions.

On the downside, immediate support is located at the 20-day EMA at 157.26, followed by the September 30 low at 156.38. On the upside, the September 24 high at 159.04 is the immediate resistance. Above 159.04, the September 2 high at 160.39 will be the key hurdle.

(The technical analysis of this story was written with the help of an AI tool. Know more.)

• Gold remains confined in a range as traders opt to wait for the release of the US NFP report.
• The USD stands firm near a one-and-a-half-year top, acting as a headwind for the commodity.
• Oil-driven inflation fears keep US bond yields near multi-year highs, further capping the bullion.

Gold (XAU/USD) steadies below the $4,200 mark during the first half of the European session on Friday as traders keenly await the release of US employment details. The US Nonfarm Payrolls (NFP) report is expected to show the economy added only 90K jobs in September, down from the previous month's reading of 162K. Meanwhile, the Unemployment Rate is anticipated to hold at 4.1%. Adding to this, annual wage inflation, as measured by the change in Average Hourly Earnings, will offer fresh cues about the Federal Reserve's (Fed) future policy path amid receding October rate-hike bets. This, in turn, will drive the US Dollar (USD) and provide some meaningful impetus to the non-yielding bullion.

A slew of influential FOMC members recently indicated that they do not see an urgent need for an immediate interest rate hike after the widely expected quarter-point increase at the September meeting. Meanwhile, the Institute for Supply Management (ISM) reported on Thursday that economic activity in the US manufacturing sector expanded for the ninth straight month in September. Additional details of the survey revealed that raw material prices increased for a 24th consecutive month. This comes on top of inflationary concerns stemming from volatile energy prices, which underpin prospects for additional Fed tightening and help limit the overnight pullback in US bond yields from multi-year highs. Apart from this, the US-Iran standoff continues to support the USD and acts as a headwind for the commodity.

The Wall Street Journal reported that the Pentagon may soon send a third aircraft carrier strike group and 10,000 sailors and Marines to the Persian Gulf. Separately, Iran’s Persian Gulf Strait Authority (PGSA) said several tankers were attacked in the Strait of Hormuz in recent days. Adding to this, US President Donald Trump said on Wednesday that he would decide very soon whether to blow up Iran and added that the war will end very soon one way or the other. This keeps the geopolitical risk premium firmly in play and favors USD bulls, warranting some caution for XAU/USD bulls. Hence, it will be prudent to wait for strong follow-through buying before confirming that the Gold price has formed a near-term bottom around the $4,100 mark and positioning for any meaningful appreciation move.

XAU/USD 4-hour chart

Technical Analysis

The XAU/USD pair keeps a bearish near-term tone below the 200-period Simple Moving Average (SMA) on the 4-hour chart and the mid-range Fibonacci retracements. However, the Moving Average Convergence Divergence (MACD) indicator remains in positive territory with the line above its signal and a still-constructive histogram. Meanwhile, the Relative Strength Index (RSI) around 43 hints at a potential pause in the downside rather than a clear bullish reversal.

Hence, any positive move beyond the $4,200 mark is more likely to confront immediate resistance near the 61.8% retracement at $4,230. The 50% level at $4,319 forms the next nearby topside barrier ahead of the 200-period SMA at $4,386 and the 38.2% retracement at $4,408. This reinforces a dense supply zone, with the 23.6% retracement at $4,519 marking a more distant cap that would need to be reclaimed to meaningfully challenge the current bearish bias. On the downside, initial support is seen at the 78.6% Fibo. retracement at $4,103, ahead of the prior swing low near $3,942.

(The technical analysis of this story was written with the help of an AI tool. Know more.)

Deutsche Bank’s Early Morning Reid team reports that the S&P 500 broke a three-day losing streak, helped by a pullback in US Treasury yields and more dovish FOMC commentary. Despite strong US data and earlier upward pressure on yields, markets now price a much lower probability of an October Fed hike, supporting US equities into the upcoming jobs report.

Equities supported by lower hike odds

"Whilst European assets struggled yesterday, there was a very different tone in the US."

"Moreover, US equities recovered from their earlier sell-off, with the S&P 500 (+0.19%) ending a run of three consecutive declines, whilst futures for the index are up another +0.27% this morning."

"That left an October Fed hike just 30% priced by yesterday’s close, down from 37% on Wednesday and 70% on Monday before NY Fed President Williams similarly signalled no urgency for the next hike."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)

• GBP/USD edges up above 1.3200 on Friday but remains close to four-month lows, at 1.3180.
• Risk aversion amid the global bonds' selloff has boosted the US Dollñar across the board this week.
• Investors are looking from the sidelines on Friday, awaiting the release of the US Nonfarm Payrolls report.

The British Pound (GBP) shows marginal gains against the US Dollar (USD) on Friday, with the GBP/USD pair trading just above 1.3200, yet unable to take any significant distance from the four-week lows at 1.3180 hit on Thursday. The Pound is heading for its fifth consecutive weekly decline, with the safe-haven US Dollar buoyed amid a rout in global bonds, and with investors focused on the US Nonfarm Payrolls report, due later on the day.

US economy is expected to have created 90,000 new jobs in September, according to the market consensus, while the Unemployment Rate is seen steady at 4.1%. The ADP Employment Change report beat expectations on Wednesday and boosted hopes for a strong payrolls reading on Friday, although recent inflation data has cooled expectations of a Federal Reserve (Fed) interest rate hike in October.

Fed officials have contributed to cooling hopes of back-to-back rate hikes, although they have made it clear that monetary policy will be tightened further in the coming months. Dallas Fed President Lorie Logan said earlier on Friday that the bank will need to hike rates by at least 50 basis points to get inflation back on track, while Minneapolis Fed President Neel Kashkari reiterated his projections of one more rate hike before the year-end.

US Dollar remains firm as bond selloff deepens

The US Dollar, on the other hand, has been drawing support from the global bond rout, which has crushed investors' appetite for risk this week.

Strategists at Brown Brothers Harriman argue that the “upward trend in longer-term bond yields” largely reflects “a tighter expected policy path and rising real term premia – the compensation that investors require to hold longer-term bonds – with long-run inflation expectations still well anchored.”

Against this background, and with investors spooked away from the Euro amid the escalating French borrowing costs, the sharp EUR/USD decline has boosted the Greenback against its main peers.

In the UK, the calendar is void on Friday but, on Thursday, the S&P Global Manufacturing Purchasing Managers' Index (PMI) was revised lower, with output showing the weakest growth in the last six months. This partially offset the positive impact of Bank of England policymakers, including Governor Bailey, hinting at higher interest rates ahead, and put additional pressure on the Pound.

ING’s Chris Turner notes that the French debt sell-off triggered a reassessment of global rate expectations, but US short-dated yields only corrected modestly. With US labour data still solid and energy prices high, ING sees the Dollar retaining or slightly extending gains, with DXY targeting the 102.85.

Fed path keeps Dollar supported

"Perhaps adding to the correction lower in US rates were comments from Fed Vice Chair Philip Jefferson echoing remarks from John Williams earlier in the week that the Fed should not rush into back-to-back rate hikes. Pricing for a Fed hike in October has now dropped to just 28% from 70% a week ago, and it looks like the market is going to settle into the view that the next hike comes in December."

"Feeding into the Fed story will be today's release of the September non-farm payroll figure. Consensus expects around an +85/90k headline gain, an unemployment rate remaining low at 4.1% and a healthy average earnings figure near 3.1% year-on-year. Given very low growth in the US labour force, we doubt a downside disappointment in the headline number will weigh heavily on US rates or the dollar."

"With energy prices remaining at their highs and the US activity story resilient, it looks like the dollar can largely hold gains if not extend a little higher – especially against the euro. DXY broke to a new high for the year above 101.80 yesterday and looks biased to head up to the 102.85 area."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)

• US Nonfarm Payrolls are expected to rise by 90K in September, following August’s impressive 162K increase.
• The Unemployment Rate is forecast to hold steady at 4.1%.
• US employment data could influence the market pricing of a potential Fed interest rate hike in October.

The United States (US) Bureau of Labor Statistics (BLS) is set to release September Nonfarm Payrolls (NFP) data on Friday at 12:30 GMT. 

With investors struggling to make up their minds about a potential Federal Reserve (Fed) interest rate hike in October, the underlying details of the employment report could influence how markets assess the US central bank’s policy outlook and drive the US Dollar’s (USD) valuation. 

What to expect from the Nonfarm Payrolls report?

Investors expect NFP to rise by 90K in September following August’s impressive 162K increase. The Unemployment Rate is seen holding steady at 4.1%, while the monthly wage inflation, as measured by the change in Average Hourly Earnings (AHE), is projected to hold steady at 0.3%.

After the August employment data confirmed healthy labor market conditions, the Fed raised the policy rate by 25 basis points (bps) at the September meeting, as expected. In its policy statement, the US central bank noted that job gains have kept pace with the workforce, and the unemployment rate has changed little. Reiterating this sentiment, Fed Chair Kevin Warsh explained that the jobless rate remained low, while openings and hours increased, adding that “the labor side of the Fed’s remit is in good shape.”

According to TD Securities, "September NFP likely moderated to 50k, with the Unemployment Rate rising to 4.2%," following a strong August print. The bank attributes the slowdown largely to "a reversal in seasonal factors," noting that "private payrolls at 50k will likely be led by healthcare and leisure & hospitality," while "flat government will be weighed down by a reversal in local hiring." TD also expects "AHE was likely subdued at 0.1% m/m (3.0% y/y)," with the unemployment rate moving higher "along with participation." Overall, TD stresses that it would "look through dovishness in the report due to seasonal factors and rising participation," arguing that the softer headline numbers may be less meaningful for the broader policy outlook. 

How will the US September Nonfarm Payrolls affect EUR/USD?

Following the Fed’s September meeting, hawkish comments from policymakers and upbeat macroeconomic data releases from the US fed into expectations for a consecutive rate increase in October and supported the USD. The S&P Global’s Manufacturing and Services Purchasing Managers’ Indexes (PMI) improved to 57 and 58.7, respectively, showing a healthy expansion in the private sector’s business activity. 

Philadelphia Fed President Anna Paulson argued that they may need to raise interest rates again, explaining that even though the September hike improved the inflation-fighting stance, underlying inflation remained "stubbornly high." Similarly, Chicago Fed President Austan Goolsbee warned that future productivity gains from AI raise a “high danger of overheating now.” In addition, his emphasis on massive fiscal deficits, prolonged overshooting of the inflation target, and the need to revisit the logic of looking through supply shocks, signalled a bias toward tighter policy.

The CME FedWatch Tool’s probability of a rate hike in October rose toward 70% earlier in the week but retreated below after the US Bureau of Economic Analysis reported that the Core Personal Consumption Expenditures (PCE) Price Index, the Fed’s preferred gauge of inflation, rose 3% in August, matching July’s print and coming in well below the market expectation of 3.3%. 

In the current market environment, another NFP print above 100K could revive expectations for an interest rate increase at the upcoming meeting and trigger another leg higher in the USD, causing EUR/USD to turn south heading into the weekend. Conversely, a significant negative surprise, a reading below 50K, could hurt the USD with the immediate reaction. A figure between 50K and 100K could have little impact on market pricing of the Fed’s rate outlook.

Analysts at OCBC note that “recent claims data have continued to trend lower, suggesting labour market conditions remain firm,” and warn that “the risk of an upside payrolls surprise appears to be increasing.” They argue that a “stronger-than-expected employment report would likely reinforce expectations of further Fed tightening, keep Treasury yields elevated and provide additional support for the USD,” underscoring the importance of this week’s US labour market release for the Dollar’s near-term trajectory. 

Eren Sengezer, European Session Lead Analyst at FXStreet, offers a brief technical outlook for EUR/USD: 

“EUR/USD’s near-term technical outlook highlights a bearish stance as it trades well below the 100-day and 200-day Simple Moving Averages (SMA) and the descending trend line. However, the Relative Strength Index (RSI) indicator on the daily chart sits below 20, pointing to oversold conditions”

“On the downside, 1.1145 (static level) aligns as the next key support level ahead of 1.1000 (static level, round level). Looking north, the first important resistance level could be spotted at 1.1460 (static level, Bollinger Band mid-point) before 1.1520 (100-day SMA) and 1.1615 (200-day SMA, descending trend line).”

(This story was corrected at 08:47 GMT to note in the second subheading that the Nonfarm Payrolls data is for September, not August.)