• EUR/USD is trading practically flat between 1.1600 and 1.1630 on Friday.
• FX volatility remains subdued with investors awaiting the release of the key US Nonfarm Payrolls report.
• In the Eurozone, German Factory Orders beat expectations, and the market awaits Retail Sales figures, due later in the day.

The Euro (EUR) is trading flat above 1.1600 against the US Dollar (USD) on Friday, with upside attempts capped below the 1.1630 area. Investors are wary of selling the US Dollar ahead of the US Nonfarm Payrolls (NFP) release, which is expected to provide further insight into the outcome of September’s Federal Reserve’s (Fed) monetary policy meeting.

Data from Germany released on Friday showed that Factory Orders rose 2.5% in July, beating expectations of a 0.3% increase, and following a 3.7% gain in June. Year-over-year, orders of German industrial products rose 13.1%, almost twice June’s 7.2% increment.

Later on the day, Eurozone Retail Sales are expected to show that consumption bounced up 0.3% in July, reversing June’s 0.3% drop. At the same time, European Central Bank (ECB) member Philip Lane is expected to meet the press and likely reiterate that the bank is ready to hike interest rates further.

NFP Dollar reaction seen as limited without follow-through from inflation

The highlight of the day on Friday is the US NFP report, due during the US session, although this time its impact on the US Dollar might be softer than usual, as investors will likely wait for next week’s Consumer Price Index (CPI) figures to assess the chances of a rate hike at the Fed meeting on September 15 and 16.

Analysts at TD Securities argue that “the more important piece of the puzzle is inflation, as part of the strength in the NFP can be considered to be a reversal of the July weakness.” In that sense,, “a strong payrolls report (…) will give a slight boost to the USD but is unlikely to push the committee towards a hike unless followed by a strong inflation print.”

“In the case of a +40-50k upward payrolls surprise to consensus median as we expect, historical sensitivity and current positioning would suggest +0.2% knee-jerk USD reaction on the day,” said the experts in a note.

On Thursday, Fed Governor Christopher Waller urged the Fed to give disinflation a chance and added that the central bank could afford to stand pat on rates in September, as in his opinion, “the current rate setting could get us back to 2% inflation”. These comments reduced tightening expectations to a coin toss in September.