EUR/USD: Bulls to have the upper hand due to weak NFP

EUR/USD has been recovering after the safe-haven dollar failed to capitalize on the stock sell-off. All eyes are on US Non-Farm Payrolls, which have room to disappoint, triggering a bullish breakout, FXStreet’s analyst Yohay Elam reports.

Key quotes

“Economists expect an increase of 1.4 million jobs last month, a remarkable surge in normal times but a slower restoration of jobs in coronavirus times. It would be below July's 1.763 million gain. The unemployment rate is projected to drop from 10.2% to 9.8% – entering single-digit territory which would cheer politicians. However, lower joblessness is accompanied by a plunge in the participation rate, which is forecast to remain at the depressed level of 61.4%. Indicators leading to the publication have been mixed. Overall, there are reasons to believe the NFP will fall short of estimates, weighing on the dollar and allowing EUR/USD to extend its recovery.”

“Euro/dollar's strength was evident in response to the much-awaited sell-off in stocks. The S&P 500 fell by around 3.5% after a 60% run from March's bottom. Profit-taking, concerns about deadlocked fiscal stimulus talks, and uncertainty about the elections – which still point to a small lead for Biden – were cited as reasons for the fall. The safe-haven dollar tends to gain when stocks fall – and that did not happen now.” 

“Coronavirus cases continue rising in Spain and France, with both major countries considering extending the furlough scheme that kept workers attached to their jobs.”

“The European Central Bank has been weighing on the common currency earlier this week. Philip Lane, the ECB's Chief Economists, said he is watching the exchange rate. Later, an article in the Financial Times cited unnamed officials expressing concern about the appreciation of the euro. The ECB announces its decision next week and investors may refocus on these reports at some point – but probably only after the dust settles from the NFP.”