After a five-day bearish run, the euro-dollar pair has entered a drift. For five consecutive trading days, the pair has actively declined amidst an overall strengthening of the U.S. dollar. Just a week ago, buyers of EUR/USD were testing the 1.1650 resistance level (the lower boundary of the Kumo cloud on the D1 timeframe), while on Wednesday, the price settled at 1.1477.
However, despite prevailing bearish sentiment, sellers are struggling to maintain positions below the 1.1480 support level (the lower line of the Bollinger Bands indicator on the daily chart and the Kijun-sen line on the weekly chart). Buyers, in turn, are unable to organize even a modest correction. For example, the price retracement in EUR/USD was limited to just 20 pips (the intraday high was 1.1499), after which sellers reclaimed control.
Support for the U.S. dollar was provided by the ADP report released today, which remains essentially the only source of information about the state of the labor market in the U.S. Despite the report being unofficial and not including data from the public sector and certain non-farm industries, it managed to provoke volatility in the market. Judging by the market's reaction, traders responded to the "green" results of the release, even though the October report indicated a further weakening of the U.S. labor market.
As a brief reminder, last month the ADP figure fell into negative territory for the first time in four years. According to preliminary estimates, the number of people employed in the private sector decreased by 32,000 in September (the lowest figure since December 2020). Furthermore, the August result was revised downward (from +54,000 to -3,000). This release placed significant pressure on the dollar.
Preliminary forecasts suggested that the ADP report for October would reflect an increase of 28,000 jobs in the private sector. However, the actual figure came in at 42,000. The September result was slightly improved as well (instead of -32,000, it was adjusted to -29,000). The report's structure indicates that growth occurred in the education, healthcare, trade, and transportation sectors, while sectors providing professional/business services, information services, and hospitality continued to lose jobs.
Overall, the release reflected a moderate improvement in the situation in October following the disappointing result of the prior month. On one hand, the ADP report sent a positive signal, indicating that hiring is back on the rise. On the other hand, the growth remains weak; a 42,000 increase in jobs does not signify that the U.S. labor market is gaining momentum. It's also important to note that the ADP measures only the private sector, and its calculation methodology differs from that of the official statistics provided by the BLS (Bureau of Labor Statistics).
Nonetheless, despite numerous "buts," the ADP report supported the dollar. Furthermore, another important macroeconomic indicator—the ISM services sector activity index—also came in positive. In September, this index fell to the 50.0 threshold, signaling potential contraction. Most analysts predicted a slight rise in October, from 50.0 to 50.8. However, the index reached an eight-month high at 52.4.
There is, however, a caveat regarding the labor market situation. The employment index remained below the 50-point mark, meaning it is still in contraction territory, only slightly improving from 47.2 to 48.2. This indicates that hiring in the services sector remains weak, which is significant, as the services sector heavily relies on consumer spending and employment. A lag in either of these factors diminishes the potential for further growth in the overall index.
Yet, despite this rather serious issue, the ISM report still sided with the dollar. The EUR/USD pair remains under pressure.
It is advisable to consider short positions in the pair only after sellers break through the support level of 1.1480 and secure their positions below it. Notably, EUR/USD bears have tested this price barrier throughout the day but have been unsuccessful. If the southbound momentum in this price area eventually fades, buyers will regain initiative, and long positions will once again take precedence. In that case, a more substantial corrective retracement can be expected toward levels of 1.1510 and 1.1550 (the middle and upper lines of the Bollinger Bands indicator on the H4 timeframe).
