Solid NFP Report Increases 50 bps Rate Hike Scenario
Jobs Situation Continues to Improve in the United States. What Will Be the Fed’s Next Move?
Friday’s Non-Farm Payrolls report showed that 431K jobs were created during the previous month, which was lower than the anticipated 492K. However, the overall jobs situation in the U.S. is improving, as the Average Hourly Earnings increased by 0.4% (previous 0.1%) and the Unemployment Rate dropped to 3.6%, exceeding the forecast of 3.7% and the previous of 3.8%. This could determine the Fed to hike by 50 bps at their May, June, and possibly July meetings.
Inflation in the European Union is accelerating, as revealed by Eurozone’s CPI Flash Estimate (year over year) that jumped to 7.5%, exceeding both the previous value (5.9%) and the forecast (6.7%). This puts pressure on the European Central Bank to act in order to contain rising inflation, even if economic growth is stalling.
Key Events for the Week Ahead
The first notable event of the week will be the release of the U.S. Services PMI, scheduled for Tuesday at 2:00 pm GMT. The index shows the opinions of purchasing managers about the overall state of the services sector and acts as a leading indicator of economic health with medium-to-high impact.
Same day at 2:05 pm GMT, FOMC’s Brainard will speak at an online event organized by the Federal Reserve Bank of Minneapolis. The main focus of the discussion will be inflation, which is always a hot topic, thus volatility may ensue.
The FOMC Meeting Minutes will come out Wednesday at 6:00 pm GMT and will offer insights into the reasons that determined the latest rate decision. More importantly, the document may offer clues about the pace of future hikes, which would increase its impact.
Thursday at 1:00 pm GMT, FOMC Member Bullard will speak at an event hosted by the University of Missouri on the topic of monetary policy and the economy in general. Audience questions are expected, which may lead to volatility.
Technical Outlook – EUR/USD
The Euro exhibited some strength lately but the bulls were stopped at the confluence zone created by the 50-day Moving Average, the upper border of the diagonal channel, and the resistance level at 1.1175.
Currently, the pair is trading at 1.1030 and the US Dollar seems to have regained its momentum, which increases the probability of a move towards the bottom of the diagonal channel and possibly closer to the previous low at 1.0800.
The technical indicators are neutral, with the MACD showing indecision and the RSI trading in the middle of its range. The pair is in a long-term downtrend, thus the probability of bearish moves is higher; all upside movement should be capped by the resistance zone at 1.1175.
