EUR/USD. Useless Nonfarms: Trump made traders turn away from macroeconomic reports

Data on the growth of the US labor market could not support the dollar, which rather unexpectedly came under pressure from an external fundamental background. Another escalation of the trade war between the United States and China has mixed all the cards with dollar bulls. After all, at the end of the July Fed meeting, traders had the confidence that the regulator would limit itself to one round of rate cuts, as a precautionary measure. However, after the release of an extremely weak ISM index in the manufacturing sector, as well as after a resonant statement by Donald Trump, concerns about the Fed's next steps returned to the market.

The market clearly focused on geopolitical events, as it completely ignored one of the key macroeconomic indicators, Nonfarms. Although this release was supposed to support a further rally in the US currency: the US labor market continues to recover, demonstrating the growth of the main components. Thus, the number of people employed in the non-agricultural sector increased by 164,000 (which fully coincided with the forecast), while the unemployment rate remained at a record low of 3.7%. The number of people employed in the manufacturing sector of the economy increased by 16 thousand (a positive trend for the 2nd month in a row). The growth rate of the average hourly wage also pleased investors: in annual terms, the indicator rose to 3.2% (for the first time since April), and in monthly terms, the component rose to 0.3% (at this level, the indicator goes for the third month in a row). Thus, the July data completely offset concerns about the dynamics of growth in the US labor market, although this issue was on the agenda this spring, both among investors and members of the US regulator.

It is likely that after the release of Friday's data, EUR/USD bears would try to enter the ninth figure area or at least try to test a strong support level of 1.0980 (lower Kumo cloud boundary on the monthly chart) - but an unexpected move by the US president ruined the plans of the dollar bulls. When trading was about to close, the pair approached the first resistance level of 1.1120 (Tenkan-sen line on the daily chart), and if the growth of anti-risk sentiment continues, then the bulls will be able to develop further correction - up to the levels of 1.1190 and 1.1220 (middle line BB and Kijun-sen line on D1).

Here it is worth noting that on Friday, the Chinese Ministry of Commerce has already accused Donald Trump of violating the June agreement with Xi Jinping, promising to use "countermeasures". It is likely that this week we will find out what measures we are talking about. Strengthening the US-China conflict will put pressure on the dollar, since the escalation of trade war is seen by the market through the prism of prospects for further easing of the Fed's monetary policy.

Analysis are provided by InstaForex