The economic calendar for the coming week is not crowded with major events for EUR/USD. The most important macro report will be published on Monday: the September US ISM services index. Traders will also watch the Federal Reserve minutes and the University of Michigan monthly survey. That's basically it.

But that does not mean we are in for a boring, low-volatility week, far from it.

First, the market has not yet fully priced in September's Nonfarm Payrolls released on Friday. On the one hand, the report showed weak employment growth (29k), a rise in unemployment (to 4.2%), and slowing wage growth (0.1% m/m and 3.0% y/y). Meanwhile, labor force participation rose for the second month in a row (partly explaining the higher unemployment rate), and wage deceleration does not appear large enough to fully remove inflation risks. So the market still needs to reassess the balance between weak labor-market signals and the need to keep Fed policy tight.

Moreover, the upcoming releases can either pour fuel on the dollar's advance or, conversely, trigger a deeper correction.

ISM Services

On Monday, the September ISM services index will be published, and I believe this release will set the tone for trading in the first half of the week. In August, the indicator rose to 55.4 from 54.1 in July. The rise was fairly broad: business activity climbed to 61.7, new orders to 60.9, and backlogs to 55.6. Employment, however, remained in contraction at 47.8, while the prices index accelerated to 72.6.

Most analysts expect ISM Services to show further strength in September — to about 55.7. Forecasts: business activity 61.5, new orders 60.3, employment 48.0, prices 72.9. Thus the market anticipates a slight cooling in demand components but continued strengthening of price pressure.

Note that in current circumstances the structure of the report may matter more than the headline number. Continued price increases would reinforce Fed concerns about persistent inflation. Particularly telling would be the combination of elevated prices and weak hiring — the same imbalance currently observed in the labor market.

The release could provoke strong volatility across dollar pairs, and EUR/USD will be no exception. ISM Services is now more important than the manufacturing index (which also caused volatility last week): services dominate the US economy, and for the Fed the labor-intensive segments where prices are closely linked to labor costs are especially relevant. Persistent demand in services alongside an elevated prices index would signal more durable inflationary pressure.

"Fed Minutes"

On Wednesday the minutes of the September Fed meeting will be published; at that meeting the policy rate was raised by 25 basis points — to 3.75%–4.00%. The decision was unanimous (unlike the prior "wait-and-see" vote in July), and the accompanying statement shifted toward fighting inflation: the central bank acknowledged elevated price pressures and stressed the need for a "more timely return to the 2% goal."

Fed Chair Kevin Warsh also delivered fairly hawkish remarks at the post-meeting press conference. In his words, inflation in the US is "too high and is persisting too long," and summer data "do not indicate a material improvement in underlying trends." At the same time, Warsh noted the economy's resilience and a healthy labor market. It is hard to imagine a more hawkish combination of theses.

Also recall the dot plot was updated in September. It became known that of 18 participants, 16 priced in at least one more rate hike by year-end: the median projection implies a funds rate of 4.125% by the end of 2026. In this context, the September minutes could strengthen hawkish expectations if they show broad support for further tightening. However, the minutes could also work against the greenback if many officials viewed the September hike as "insurance" and preferred to wait for new employment and inflation data. In that case, the market would receive a signal to revise the rate trajectory more sharply.

"Michigan Signals"

On Friday, the University of Michigan will publish preliminary results of its October survey. Consensus expects a small decline in the consumer-sentiment index — to 47.6 (from 48.1). Because consumer spending is a key part of the US economy, a more pronounced deterioration in sentiment would be an additional argument against overly tight Fed policy.

However, the inflation component of the report matters more for the dollar. In September, one-year inflation expectations rose from 4.0% to 4.6%, and long-term expectations climbed to 3.4%. This month the market expects one-year expectations to accelerate further to 4.7%. Five-year expectations are also forecast to edge up to 3.5%.

If those forecasts materialize, the Fed would face a difficult, contradictory situation. On one hand, cooling consumer sentiment would point to weakening domestic demand and potential economic slowing. On the other hand, rising inflation expectations would signal persistent price risks. For the dollar, that scenario is highly ambiguous, but in the short term it could support hawkish expectations about the future path of rates.

Conclusions

After weak Nonfarm Payrolls, the dollar is in a rather vulnerable position. But overall the fundamental picture has not become unambiguously bearish for the greenback. The coming week will therefore play an important role. A strong ISM Services print, hawkish signals in the minutes, and rising inflation expectations can return initiative to sellers of EUR/USD and open the path toward the 1.1x area. But if services begin to cool and the Fed minutes prove too cautious, buyers of the pair will get a chance to build on Friday's correction and recover toward the 1.13 area.

The scales are currently balanced, but by the end of the coming week one side will inevitably tip — the question is whether it will be in favor of the greenback or the euro.