17.12.202505:34 Forex Analyse & Reviews: EUR/USD: Conflicting Non-Farms, Weak Retail Sales, and "Red" PMI

The EUR/USD pair surged to a nearly three-month high on Tuesday in response to the release of the Non-Farm Payrolls data. Marking 1.1805, EUR/USD buyers retreated to previous positions, failing to hold above the 18 figure.

Despite the NFP's conflicting structure, the published report allows the Federal Reserve to consider another interest rate cut at one of the upcoming meetings. However, the key indicator, inflation (CPI), will be published on December 16. This circumstance explains the market's cool reaction to the report, as this is just the first piece of the puzzle that will form the overall picture.

According to the data, the US unemployment rate rose to 4.6%, while most analysts expected it to be 4.5%. This is a four-year high; the last time unemployment was at this level was in October 2021. Additionally, a clear negative trend is now visible: the rate has been rising for four consecutive months.

The number of jobs in the non-farm sector increased by 64,000. Most experts expected a weaker outcome (+50,000), but there are two caveats here.

First, the 64,000 increase in jobs is insufficient to maintain the unemployment rate at the same level. Clearly, the demand for labor is lagging behind supply, as confirmed by the rise in US unemployment to 4.6%.

Second, the results from previous months were revised downward by a total of 33,000 (August and September). In October, the labor market suffered a substantial loss of 105,000 jobs, primarily due to federal employee cutbacks (i.e., as a result of the shutdown). Moreover, negative dynamics were also observed in the small business sector.

The wage figures were disappointing as well. Hourly wages showed very weak growth—only 0.1% month-over-month (with a forecast of +0.3%). This is the slowest growth rate since July 2024. Year-on-year, the figure slowed to 3.5%. This indicates a multi-year record low (the lowest value of the indicator since May 2021).

In other words, despite some components of the NFP being in the "green zone," the overall tone of the report reflects the ongoing weakness in the US labor market. Weak employment growth, slowing wage increases, and consequently rising unemployment.

It is also worth noting that dollar bulls were disappointed not only by the Non-Farms report. Retail sales data from the US also came in "red." It became known that retail sales volume in October remained unchanged, coming in at a zero level, while most analysts had forecasted weak but still positive growth (of 0.1%). Such a weak result indicates a waning consumer demand amid economic uncertainty and curbed spending.

The published US manufacturing activity index also disappointed. This key macroeconomic indicator remained in the expansion zone in December, but fell to 51.8 (forecast: 52.0). This index has declined for the second month in a row. The report's structure points, among other things, to a decrease in new orders, reflecting weakened demand for manufacturers' products. Production is slowing (though it remains in growth territory), and raw material inventories are increasing, indicating stockpiling amid slower product buyouts.

The services sector PMI also decreased, although it remained in the expansion zone. In December, this indicator slowed to 52.9, down from 54.1 in November. This trend points to a downward trend, as the index has fallen for the second consecutive month.

Thus, the representatives of the Fed's "dovish wing" received additional arguments to support their position. A weak labor market, weak retail sales, and weak growth in the manufacturing and services sectors. We are just missing one piece of the puzzle—inflation. If the CPI report comes in weak, the dollar will come under additional pressure, allowing the EUR/USD pair to maintain its position within the 18 figure.

Forecasts suggest that the consumer price index in October will show an upward trend, rising to 3.1% year-on-year. The core index, excluding food and energy prices, is also expected to rise to 3.1% after a slight slowdown to 3.0% in September.

If the CPI hits the forecast level or comes in positive, market expectations of interest rate cuts in January or March will rise. In such a case, the EUR/USD pair will likely return to the 16 figure area. However, if inflation slows contrary to expectations, the puzzle will be completed against the dollar. In that scenario, buyers of the pair will confidently settle in the 18-figure area, breaching the 1.1820 resistance level (the upper line of the Bollinger Bands on the weekly timeframe). The intrigue remains, so entering long positions is advisable only on downward price pullbacks with targets around 1.1790 – 1.1800.