EURUSD breaks 1.20 for the first time since 2018 Friday’s jobs data may determine what’s next|KOL

We wrap this week up with the U.S. jobs report, but first, there’s a lot to unpack when looking at EURUSD and what to expect next. The pair broke through 1.20 Tuesday for the first time since Q2 2018 while Europe’s data is coming in strong.

Last week the Fed shared its new inflation target of 2% -- higher inflation impacts (lessens) the dollar’s buying power, but this could be a positive for those bearish. It also means a rate hike is unlikely to happen for a long while, and though Europe’s rates are around similar levels, its economies are growing at a better rate than that of the US.

The Fed’s Beige Book report, published this week, pointed to economic activity growing across most of its districts, but called it ‘modest’ compared to pre-pandemic levels, which is to be expected. It also addressed that while employment was up overall, there are districts that reported slowing job growth amid hiring volatility, paired with a rise in furloughed workers being permanently laid off as a result.

Looking ahead to the employment data, we know that the ADP private sector survey results fell far below estimates Wednesday, counting only 428k new jobs added over August -- double the previous month, but still closer to half of what the analyst consensus was. That said, July’s ADP was way off the mark at 167k (later revised to 212k) where the NFP came in at 1.7 million new jobs. What it does tell us, however, is that re-hiring and job creation has slowed from the start of the summer and the end of lockdown.

At the time of writing, Initial Jobless Claims for this week hadn’t yet been published, but even as (if) this number drops, we’re still looking at months upon months of 1m+ new claims each week, with the exception of only one, where the figure came in just under, at 963k initially, and was later revised to 971k.

Over the last three months we’ve seen the labour market start to recoup some of those lost to the pandemic, but it is slow, and it will be a while before it even starts to make a dent. The US jobs data and unemployment rate will be published by the Bureau of Labor Statistics Friday, with expectations of ~1.4 million and 9.8% respectively.

Even if the result is positive, any effect on the dollar will be short-lived. Across the pond, Germany’s Bundesbank Weekly Activity Index (WAI) showed an improvement of 3.2% in economic activity as of the week ending August 30th. This compared to its US counterpart, the NY Fed’s Weekly Economic Index (WEI), showing a 5% downturn, and an overall -6.96% average decline over the same 13-week period measured (pictured below). It cited missing data and a decline in steel production as the root of the drop for that week.

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