US NFP REPORT KEY POINTS:

• The U.S. economy is forecast to have created 180,000 jobs in October
• The unemployment rate is seen holding steady at 3.8%
• A weak NFP report would be bearish for the U.S. dollar, creating the right conditions for a moderate rally in EUR/USD and GBP/USD

Most Read: US Dollar Forecast - USD/JPY Slips but AUD/USD Breaks Out After Fed, NFP Ahead

Wall Street will be on high alert Friday morning when the U.S. Bureau of Labor Statistics publishes its most recent employment survey. With the potential to alter the Federal Reserve's monetary policy outlook, this report is set to draw substantial attention and scrutiny, possibly resulting in greater market volatility heading into the weekend.

Consensus forecasts suggest that U.S. employers increased payrolls by 180,000 in October, following the addition of 336,000 jobs in September. Separately, household data is expected to reveal that the unemployment rate remained unchanged at 3.8%, highlighting the persistent tightness in labor market conditions.

Focusing on compensation, average hourly earnings are seen rising 0.3% monthly, which would result in an annual reading of 4.3%. For the Federal Reserve, pay growth is a critical metric, serving as an indicator of inflationary trends. Therefore, it is of utmost importance to observe the progression of wages in the broader economy and assess their compatibility with the 2.0% inflation target.

UPCOMING US LABOR MARKET DATA

POSSIBLE MARKET SCENARIOS

Fed Chair Powell has maintained the possibility of additional policy tightening for the current cycle, but has not firmly embraced this scenario, pledging to proceed carefully in the face of growing uncertainties. This suggests that policymakers will rely heavily on incoming information to formulate future decisions.

Looking at implied probabilities, the odds of a quarter-point rate rise at the December Fed meeting sits at roughly 20% at the time of writing. Market pricing has been in a state of flux lately, but the likelihood of another hike could rise materially if payroll numbers beat projections by a wide margin. Any NFP headline figure above 275,000 could have this effect on expectations.

Generally speaking, a very hot employment survey could spark a hawkish repricing of the Fed’s policy path, creating the right conditions for U.S. Treasury yields to resume their ascent after their recent pullback. This scenario could give the U.S. dollar a boost against its top peers such as the euro and the British pound.

On the other hand, if hiring activity disappoints and confirms that the economic outlook is deteriorating, rates could continue their retrenchment, sending the broader U.S. dollar lower. This scenario would be supportive of EUR/USD and GBP/USD, allowing both pairs to extend their nascent recovery. Anything below 100,000 jobs should be bearish for the American currency.

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FOMC MEETING PROBABILITIES

Source: FedWatch Tool

EUR/USD TECHNICAL ANALYSIS

EUR/USD rebounded on Thursday amid broad-based U.S. dollar weakness, but fell short of taking out overhead resistance stretching from 1.0670 to 1.0695. For confidence to improve further, we need to see a clear and clean move above 1.0670/1.0695 in the coming days. If this scenario unfolds, the bullish camp may reassert dominance, paving the way for a rally towards 1.0765, the 38.2% Fibonacci retracement of the July/October selloff.

On the other hand, if sellers regain the upper hand and drive prices below trendline support at 1.0535, downward momentum could intensify, opening the door for a drop toward the 1.0450. Below this region, the next area of interest is located at 1.0355.

EUR/USD TECHNICAL CHART

EUR/USD Chart Creating Using TradingView

GBP/USD TECHNICAL ANALYSIS

The British pound has been weakening against the U.S. dollar since mid-July, with GBP/USD steered to the downside by a well-defined bearish trendline and marking impeccable higher lows and lower lows during its slide. Earlier in the week, cable made a push towards trendline resistance at 1.2200, but failed to clear it decisively, a sign that the bulls have not yet developed the necessary momentum for a breakout.

For a clearer picture of the short-term prospects for GBP/USD, it's vital to assess how prices behave around crucial levels over the next few days, taking into account two potential scenarios.

Scenario one: Breakout

If cable manages to breach dynamic resistance at 1.2200, we could see a move towards 1.2330. On further strength, the focus shifts to the 200-day simple moving average near 1.2450.

Scenario two: Bearish rejection

If cable gets repelled lower from its current position, the pair could head toward its yearly lows at 1.2075, where the 38.2% Fibonacci retracement of the 2022/2023 rally aligns with several swing lows. Maintaining this technical support is of utmost importance; any breach could trigger a decline towards the 1.1800 handle.

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GBP/USD TECHNICAL CHART

GBP/USD Chart Created Using TradingView

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