EUR/USD: a preview of september NFP data!

At the end of the trading week, as is customary on the first Friday of each new month, non-farm payroll data will show the state of the U.S. labour market. Since the February-April lockdowns and the resulting job losses, the U.S. has created millions of jobs every month.

However, the labour market is still showing signs of weakness. Most of those who returned to work were employees on temporary leave. As a result, jobs are not newly created, but have been "frozen" for some time.

Moreover, all these months since the end of springtime, the trend of permanent job losses has been upward. Looking behind the headlines, every month since May, permanent job losses have increased, despite the fact that the headlines announce the creation of millions of new jobs.

Moreover, if we do a simple calculation and compare the 21.9 million jobs lost in February-April with those created in the following months, we see that there is still a huge gap to be filled.

What can we expect from Friday's NFP report?

This NFP release does not mean much to the financial markets. Not that the figure is unimportant, but the focus for now is on European inflation data and the US elections.

As such, whether or not NFP expectations are missing should come second. The market will react, but it will mostly be triggered by high frequency trading algorithms programmed to make the most of a rapid market movement.

The US is expected to create an additional 899,000 jobs for this past month. However, this is the average, with the risk of tilting the balance in a downward direction.

Oxford Economics predicts that the NFP will show only 590,000 additional jobs for the U.S. economy for this month, following the 1,399,000 jobs added last month. At this pace, employment levels remain well below the pre-pandemic level of about 6.9%.

Weak growth in economic activity is expected to affect the jobs created this month. The market will also focus on the unemployment rate, as the Fed has indicated several times recently that high employment levels remain on its list of priorities.

As mentioned at the beginning of this article, don't expect much in terms of clear market direction from the next NFP. Instead, look for a new positioning for the coming week as we enter the final hours of trading tomorrow.

If European core inflation, which will be released before the NFPs, falls below the previous level of 0.39%, traders will use any rebound in the eurodollar given by the weak NFPs to establish short positions for upcoming ECB dovish stocks. And if the eurodollar turns, the USD will turn as well.