U.S. labor market report returns EUR/USD bears to play

At the end of 2019, the financial markets continue to be ruled by Fear. Investors seem ready to buy the euro on expectations of an end to the trade war between the United States and China and the recovery of the eurozone economy, but the slightest negative forces them to wind down longs. Thus, the fall of the German by 5.3% yoy in October made it doubtful that Germany will be able to avoid recession. Bloomberg Economics estimates that the weakness of the industry will subtract 0.6 percentage points from quarterly GDP. The same situation with the greenback: it is ready to sell because of fears of a slowdown in the American economy, which will eventually force the Fed to cut rates. The November employment report broke a slender theory.

German industrial dynamics

German industrial dynamics

Source: Bloomberg.

increased by 266,000, which raised the average monthly figure for September-November to 205,000. This is slightly lower than in 2018 ( 223 thousand), but still impressive. returned to 3.5%, the lowest mark in half a century, and if employment will grow by 150-180 thousand. per month, the indicator will fall to 3.3% by the end of 2020. It increased by 3.1% year-on-year.

U.S. pay dynamics

  U.S. pay dynamics

U.S. pay dynamics

Source: Bloomberg.

“Bulls” on EUR/USD claim that there is no guarantee that low unemployment and accelerating wages will accelerate inflation, so it is unlikely that even 500,000. employment would force the Fed to talk about raising rates. Moreover, the central bank is ready to tolerate PCE above 2%. At the same time, a strong report on the state of the labor market led to higher forecasts for the fourth quarter. In particular, according to the readings of the leading indicator from the Federal Reserve Bank of Atlanta, the U.S. economy in October-December will expand by 2%. Prior to the release of the employment data, it was about 1.5%.

Strong statistics on the U.S. labor market contributed to a rise of more than 1%. The index rally is supported by the inflow of portfolio investments to the United States. At the same time, the main currencies of financing in the face and .

The dynamics of world stock indices

The dynamics of world stock indices

The dynamics of world stock indices

Source: Financial Times.

Despite the serious failure, I do not think that euro fans are ready to throw away the white flag. It is unlikely that the Fed at its last meeting in 2019 will tell investors something new. But the circumstances that Christine Lagarde will be much less “pigeon” than Mario Draghi, the ECB will not make adjustments to monetary policy (according to a survey of experts Bloomberg, the next step of the central bank will be an increase in the deposit rate in the first quarter of 2022, the zE in the amount of 20 billion per month will last until the end of 2021), and the parliamentary elections in Britain will win the Conservatives, will allow the “bulls” to be eliminated. Perhaps the single European currency does not have serious trump cards to confidently move to $1.15, but it is quite capable of competing for support at $1.1055, $1.1 and $1,096.

Dmitry Demidenko for LiteForex