• US NFP data eliminate chances of another 50bps rate cut
• Spotlight turns to US CPI numbers for September
• PMI data corroborate the notion for sticky underlying inflation
• The data comes out on Thursday, at 12:30 GMT

Bets of 50bps cut in November disappear

The dollar’s engines received more fuel on Friday, with the catalyst this time around being the robust US employment data for September. The report revealed that nonfarm payrolls increased by the most in six months, with the unemployment rate dropping to 4.1% from 4.2% and average hourly earnings accelerating.

The jobs numbers came on top of other robust data relating to the labor market, such as the better-than-expected ADP and JOLTS job openings reports, corroborating the view expressed by Fed Chair Powell and several of his colleagues that quarter-point reductions may be warranted from here onwards.

Indeed, with investors aware of how much emphasis the Fed puts on the labor market nowadays, the case for a back-to-back 50bps cut in November was taken out of the equation, with Fed funds futures now pointing to a 90% probability of a quarter-point reduction and 10% for no action at all. The total number of basis points worth of reductions by the end of the year was reduced to 50 to match the Fed’s dot plot.

Spotlight to fall on CPI inflation

With investors now in full agreement with the Fed, attention this week will fall on the minutes of the latest FOMC decision and the US CPI data for September, due out on Wednesday and Thursday, respectively.

Nonetheless, given that the financial world already knows what policymakers are planning to do, the minutes are unlikely to shake the markets. So, barring any other developments, like a major escalation in Middle East tensions, the highlight for dollar traders may be Thursday’s inflation data.

The headline CPI rate is forecast to have declined to 2.3% y/y from 2.5%, while the core rate is anticipated to have held steady at 3.2% y/y. According to the S&P Global PMIs, prices charged by businesses rose at the fastest rate in six months, and although the ISM manufacturing survey revealed a slide, the non-manufacturing report confirmed the notion of accelerating price pressures.

This validates the case for sticky underlying price pressures, while the slide in the year-on-year change in WTI crude oil supports the notion for a continued decrease in the headline rate. However, the latest rebound in oil prices poses upside risks to the headline rate for the months to come.

Sticky underlying inflation to further fuel the dollar

Having all that in mind, such results are likely to confirm that there is no need for the Fed to proceed with another round of aggressive easing, which may allow the US dollar to extend its gains. Nonetheless, it is worth mentioning that ahead of the next FOMC decision, investors will have to digest several more releases and events, including another NFP report and, of course, the outcome and pre-outcome speculation of the US election.

Euro/dollar completes a double top formation

From a technical standpoint, euro/dollar tumbled on Friday and closed the week below the key round figure of 1.1000. This signaled the completion of a double top formation on the daily chart and further declines may suggest that the short-term outlook has indeed turned bearish.

If the bears reclaim control soon, they could dive towards the low of August 8, at around 1.0880, the break of which could carry larger bearish implications, perhaps setting the stage for declines towards the 1.0780 zone, marked by the lows of August 1 and 2.

On the upside, a rebound back above 1.1000 may cancel the double top completion and turn the picture back to neutral. For the outlook to be considered positive, a recovery all the way up and above the 1.1200 barrier may be needed.