05.10.202308:26 Forex Analysis & Reviews: Overview of the EUR/USD pair. October 5th. Is the ADP report a sign of weak nonfarm data or an insignificant indicator?

The EUR/USD currency pair saw the beginning of a new phase of upward correction on Wednesday and ended the day near the moving average line. In principle, we have seen numerous such movements over the past two months as the pair moved south. Some of them ended with consolidation above the moving average, but each time the primary downward movement quickly resumed. Thus, for the past two months, we have witnessed a situation similar to what we observed in the previous 6-7 months. The European currency is falling almost every day, and it cannot make a proper correction; it even falls when there are no significant reasons or grounds for it. We are dealing with an inertial movement that is challenging to explain from a fundamental or macroeconomic point of view.

However, the current downward movement is logical and consistent since it follows almost 12 months of the euro's rise, which also didn't always have strong reasons behind it. So, what we are currently witnessing is merely a reckoning. It is difficult to predict how long the European currency will continue to decline, but we think it is possible to reach the $1.02 level by the end of 2023 as the immediate target on the 24-hour timeframe. We still expect a stronger correction than at the end of last week, which means that from the current level of 1.0523, the price can rise by 200–300 points. Consequently, it will need to drop by 500–600 points to reach the target. It's a quite achievable goal for the current year.

Nonfarm payrolls are not the dollar's helper. Representatives of the ECB's monetary committee continue to speak almost every day. They haven't been saying anything interesting to the market for a very long time. Previously, every new speech by a high-ranking official could provide an answer to the question of whether there would be a tightening of monetary policy. But now the answer to this question is already known, and reacting every day to words about a very low probability of a new rate hike seems foolish. Therefore, the market does not react. However, this week will not only feature speeches by American and European bankers. The first week of each month is the week of labor market and unemployment data publication in the United States. While this information does not have the same impact on monetary policy as before, it is still important.

The week began with the publication of two reports: ADP and JOLTs. The first one informed us about the creation of 89 thousand new jobs instead of the expected 153 thousand, while the second one reported an increase in the total number of job openings to 9.6 million instead of the forecasted 8.8 million. However, the ADP report was for September, and the JOLTs report was for August. Therefore, the ADP report is more current, but unfortunately, it has no impact on nonfarm payrolls. Nonfarm payrolls and ADP report the same thing: the number of new jobs created outside of agriculture. But these reports never correlate and always show different values and trends. The market pays more attention to nonfarms, considering them more reliable. Therefore, the ADP's decline actually does not pose any threat to the US dollar.

Nevertheless, considering the Federal Reserve's ongoing policy of tightening and the relatively high interest rate, it would be strange to assume that nonfarm or unemployment figures will improve. We believe that on Friday, there might be a moderate decrease in both indicators. However, what will matter with nonfarms is not the decrease or increase relative to the previous month but rather how it aligns with the forecast. The forecast is 170 thousand, which is lower than the previous month. On one hand, it will be easier to meet this forecast, but on the other hand, no one is currently expecting strong numbers from nonfarm payrolls.

The average volatility of the EUR/USD currency pair over the last 5 trading days as of October 5th is 78 points and is characterized as "average." Therefore, we expect the pair to move between the levels of 1.0446 and 1.0602 on Thursday. A reversal of the Heiken Ashi indicator back down will indicate a resumption of the downward movement.

Nearest support levels:

S1 – 1.0498

S2 – 1.0376

S3 – 1.0254

Nearest resistance levels:

R1 – 1.0620

R2 – 1.0742

R3 – 1.0864

Trading Recommendations:

The EUR/USD pair maintains a downward trend and initiates a new phase of correction. Short positions can be considered at the moment, with targets at 1.0446 and 1.0376 in case of a price bounce from the moving average. Long positions can be contemplated in the event of the price consolidating above the moving average line, with a target of 1.0602.

Explanations for the illustrations:

Linear regression channels - help determine the current trend. If both channels are pointing in the same direction, it indicates a strong trend.

Moving average line (settings 20.0, smoothed) - determines the short-term trend and the direction in which trading should be conducted.

Murray levels - target levels for movements and corrections.

Volatility levels (red lines) - the likely price channel in which the pair will trade in the next 24 hours, based on current volatility indicators.

CCI indicator - its entry into the overbought zone (above +250) or oversold zone (below -250) indicates an approaching trend reversal in the opposite direction.