For the first time in the last three weeks, the euro-dollar pair closed Friday's trading below the 1.1560 target, exiting the established price range of 1.1560–1.1730. Now the main intrigue lies in the simple question: will the price hold below this support level, or will it return to its previous levels? Throughout October, sellers of EUR/USD repeatedly tested the lower boundary of the aforementioned price range, declining towards the base of the 15 figure. However, each time the southern momentum faded, and buyers regained control of the pair.
Last week, the dollar strengthened mainly due to the Federal Reserve's cautious stance on the pace of further rate cuts. It is important to clarify one significant point here: the central bank's cautious stance is not driven by the dynamics of key macroeconomic indicators but rather by the absence of relevant reports due to the ongoing shutdown. Therefore, if the macroeconomic picture in the US worsens, the dollar will come under pressure again.
It should be noted that the economic picture is shaped not only by official indicators. In this context, the upcoming week is significant given the scheduled releases. These macroeconomic "hints" may either support or pressure the dollar.
On Monday, November 3, the ISM manufacturing index will be published in the US, which is one of the most important and early indicators of economic cycles. This indicator serves as a benchmark for the Fed when assessing the state of the economy and forecasting inflation risks. Since March of this year, the index has been below the 50-point mark, indicating contraction. However, over the last two months, it has shown positive dynamics, rising to 49.1 in September. October could become the third consecutive month in this series, with forecasts suggesting a reading of 49.4. This forecast is unlikely to trigger intense volatility, but if, contrary to expectations, the index enters the expansion zone (i.e., exceeds the 50-point target), the dollar will enjoy increased demand. Such an outcome would provide further support for maintaining a cautious stance at the Fed's December meeting. However, the release could also work against the greenback if it falls into the "red zone." In my opinion, a negative result would provoke greater volatility, given the "moderately hawkish" stance of the Fed at its October meeting.
On Wednesday, November 5, unofficial labor market data will be published in the US. Although the ADP report does not cover the public sector and some other non-farm industries, it is currently the only source of information on the state of the American labor market.
Recall that a month ago, the ADP indicator fell into negative territory for the first time in four years. According to the agency's calculations, the number of people employed in the private sector shrank by 32,000 in September—the lowest figure since December 2020. In addition, the August result was revised downward from +54,000 to -3,000.
According to preliminary forecasts, the ADP report for October is expected to reflect a 28,000 increase in the number of employed in the private sector. This is a weak result, but if, contrary to expectations, the figure remains in negative territory, the dollar will face strong pressure. It's worth recalling Jerome Powell's recent statement in which the Fed chair indicated that the balance of risks has shifted: the central bank's focus is now on employment rather than inflation. He noted that risks to employment have significantly increased, and that the Fed would "carefully monitor incoming data." However, among the available data in this area (for now), there are only ADP figures. If the report falls into the red zone, the market will start speculating again about the prospects for another rate cut at the December meeting.
Also on Wednesday, the ISM services activity index for October will be published in the US. According to preliminary data, this indicator is expected to show minimal growth—from 50.0 to 50.8. If, contrary to forecasts, the index enters the contraction zone (for the first time since May of this year), the dollar will come under additional pressure, especially if the manufacturing index also disappoints traders with weak results.
Another important macroeconomic indicator will be released on Friday, November 7. On this day, the University of Michigan will publish the consumer sentiment index. Over the past three months, this figure has consistently declined, reaching 53.6 in October (its lowest value since May of this year). November is also expected to show negative dynamics, with preliminary forecasts suggesting a decline to 53.0. Thus, in this case, we can confidently speak of the formation of a persistent downward trend.
The ISM indices, the ADP report, and the University of Michigan's survey are the key (scheduled) releases for the upcoming week. However, with each passing day of the ongoing shutdown, the likelihood of a "black swan" event in the form of its sudden conclusion and the publication of the NFP reports increases. In such a case, the fate of EUR/USD will depend on the Non-farm Payrolls, while all other macroeconomic reports will take a back seat.
When will the shutdown end? Unfortunately, there is no answer to this question. On Friday, Donald Trump called for "eliminating the filibuster," meaning to bypass the existing procedure that requires 60 supportive votes (which the Republicans do not have) and apply the "nuclear option," which allows a simple majority to make a decision. However, most congressmen do not support this idea, including Republicans who use the filibuster themselves when they are in the minority.
Nevertheless, according to CNN, congressmen from both parties privately acknowledge that they need to find a compromise solution within the next week or two, "otherwise, even more severe consequences will arise." In particular, in November, more than 40 million Americans could lose their food stamp benefits. Every eighth American receives food through the food program. As they say, "there's something to think about."
But even if the shutdown ends, the "cause-and-effect logic" will remain unchanged: if key macroeconomic indicators fall into the red zone, the likelihood of a Fed interest rate cut in December will increase. The dollar will consequently come under pressure again, and buyers of EUR/USD will return to the 1.1560–1.1730 range. Otherwise, the sellers of the pair may not only decline towards the base of the 15 figure but also test the support level at 1.1480, corresponding to the Kijun-sen line on the W1 timeframe.
