On the eve of the publication of the report on employment in November, the US markets continued to decline, responding to the almost complete absence of positive news. The US trade deficit has grown to a maximum in the last 10 years, and the trade deficit with China has completely updated the record. Of course, the deficit growth is partially due to the strong dollar, which holds back export growth, but it should be noted that the aggressive protectionism of the Trump administration has not yet produced any positive results.

The number of new jobs in the private sector increased in October by 179 thousand, which is noticeably lower than forecast. The risks that today's employment report will turn out to be worse than forecasts have also increased, which, in turn, will force the Fed to adjust its rate forecasts at the December meeting.

In support of the high level of interest rates, the Fed proceeds from the so-called "Phillips rule", according to which rapid growth in average wages spurs inflation. In October, the growth was 3.1%, and it would be a good indicator, if not for one circumstance, the growth in real income adjusted for inflation does not look so rosy.

In 2018, despite the seemingly steady growth of the labor market, real incomes of the population declined and threaten to go into the negative zone, which completely eliminates expectations for the growth in consumer demand. The business responds correctly, the yield on TIPS 5-year bonds, protected from inflation, has fallen to annual minimums, which means no inflation expectations rise.

The average forecast for the growth rate of new jobs in November is 200 thousand, this is a strong level, and if the data comes out in line with expectations, the dollar will receive support for the period before the Fed meeting. However, a number of indirect indicators, in particular the continuation of the slowdown in the manufacturing sector and the deterioration of the trade balance, indicate that the growth of the US labor market is close to its limit, and today the market may see figures much worse than forecasts.

The collapse of US stock markets can be stopped if the Fed takes a pause in the interest rate growth cycle. Atlanta's Federal Reserve Bank head Rafael Bostic said yesterday that, in his opinion, "a neutral level is what is needed," while interest rates are already close to that neutral level. If Bostic's opinion is shared by the majority of the voting members of the Committee, then softening of the rhetoric and a pause in the growth of interest rates will become inevitable. Markets are preparing for such a scenario, the yield of 10-year treasuries is sharply declining and has already fixed below 2.8%, which clearly indicates a reorientation of markets towards a pause in interest rates.

The dollar is preparing for a global reversal, which can get a real filling today.

Eurozone

Less than a week remains before the ECB meeting, at which the regulator will officially announce the completion of the asset repurchase program. This is clearly a bullish factor for the euro, which could increase if the Fed changes its outlook on interest rates and the ECB will look for ways to offset the expected strong euro gain.

One way is to revise the GDP growth rate for the period up to 2021 downward, that is, the ECB can change its tone in assessing the current slowdown in the eurozone economy, calling it not "temporary", but, let's say, "medium-term".

Another way is the worsening of the inflation forecast, which is also justified, since oil is declining, despite the efforts made by OPEC +. In any case, the ECB will be interested in preventing the growth of the euro by the end of the year and not increasing the pressure on producers amid a decline in exports.

The currency pair EUR / USD for the day may slightly increase to 1.1415 / 25, if the report on the US labor market is close to the forecast levels, if the market sees numbers worse than expected, the euro will be able to rise to 1.1470.

Great Britain

The pound is under pressure before approaching the date of the Brexit vote in the British Parliament on December 11. Some pullback to 1.28 at the auction on Thursday is a consequence of the sale of the dollar and is temporary, there are no internal reasons for strengthening the pound.

A weak report on the US labor market will allow GBP / USD to rise to 1.2840 / 50, otherwise the pound will go to re-test support of 1.2650.