The labor market is cooling off, but not as fast as the Federal Reserve would like. This keeps the May hike relevant, but there is still plenty of time before the next FOMC meeting. Things could change. For now, the latest U.S. labor market report has raised the probability of the Fed raising its benchmark interest rate by 25 basis points at the May meeting from 47% to 67%, allowing the EURUSD bears to maintain intrigue in the fight for the 1.09 level.

Nonfarm payrolls grew from 326,000 to 236,000 for March, matching Bloomberg estimate of 239,000 and is also the lowest value since December 2020. The unemployment rate fell to 3.5% and the average wage growth rate fell to 4.2%. We are talking about the slowest dynamics since June 2021.

The dynamics of employment and unemployment in the US

The US labor market is certainly not as good as it was a couple of months ago, but the FOMC forecast is for unemployment to rise to 4.5%. As long as the indicator is stagnant, it is too early to talk about being able to finally reach price stability. The Fed needs to finish the job, and this circumstance allows derivatives to predict that the cycle of monetary tightening is not over.

Investors are now focusing their attention on inflation, and the key event of this week will be the March data that is set for release on April 14. Bloomberg estimates consumer prices to slow down from 6% to 5.2%, while the core indicator accelerates from 5.5% to 5.6%. Such mixed dynamics leave the door open for a rate hike in May, although discussions within the FOMC promise to be very heated.

Hawks will undoubtedly point to high core inflation, while centrists will focus on lower inflation expectations as measured by market methods. Not surprisingly, after a series of disappointing business and labor market data, the 10-year TIPS yield has fallen from 1.7% in early March to 1%.

Dynamics of inflation expectations in the US

The fate of the major currency pair is still in the Fed's hands, and its decisions will be based on incoming data. If the March employment report failed to clarify the situation, perhaps inflation will? For now, EURUSD continues to cling to the 1.09 level.

Let's not forget that there are always two currencies in a pair, and the confidence in the euro is due to the European Central Bank's determination to break the backbone of high inflation and positive developments in the eurozone economy. The euro just needs a little push to continue to rise, that is, for US inflation to continue to slow.

Technically, on the daily chart, there is a slight pullback due to the bears' attempt to realize an internal bar. If the bears succeed, returning to the upper limit of the bar near 1.097 would increase the risks of reviving the uptrend and become the basis for opening long positions while aiming for 161.8% of the AB=CD pattern. It is located near 1.1335. For longs, a bounce from $1.0855 and $1.0825 will be suitable.