This is the Non-Farm Payrolls (NFP) week, and, once again, it all comes down to what the jobs data on Friday shows. However, we do have a chance for this to be a different NFP week than usual for at least a few reasons. Among them, on Wednesday, there is the end of the trading month, and on Friday, the HICP inflation in the Eurozone is likely to put further pressure on the ECB and the Euro.
ECB Lagarde Speaking Today
The only relevant event today is the ECB Christine Lagarde speaking in front of the European Parliament. The market will likely react to any comment regarding inflation, something that the ECB hinted that it monitors closely. However, the chances are that it will be a non-event in terms of market volatility, so do not expect much from it.
It could very well be that investors already prepare for the main event of the year – the U.S. elections. If that is the case, the previous dollar selling reverses as investors either book profits on their USD short bets or establish new positions by opening long USD trades. In both cases, Wednesday should see a rise in volatility, especially during the main fixing time of the day.
Right before the NFP on Friday, the ECB could be in big trouble. Inflation data comes out for the month of September, and if the core inflation drops more (the last release came at 0.4%) or even breaks below the zero level, the ECB will be forced to act.
Already the ECB hinted that it wants more flexibility in its APP (Asset Purchasing Program) as it falls behind the Fed in the United States. As always, it is about perceptions, and the market feels that a program that starts with the word “Pandemic” is something temporary in nature. However, the ECB wants to avoid that, and for this reason, it wants the same flexibility of the PEPP program to be achieved with the APS program.
All in all, an interesting week ahead, with the NFP ending the trading week. In the meantime, anything from the U.S. elections front will likely impact the USD too.