The U.S. dollar index continues to be under pressure. Amid optimistic expectations for a resolution of the Middle Eastern conflict, traders focused on weak U.S. labor market data, overlooking the strong ISM manufacturing index.

However, there is some logic to this when considering the situation from the perspective of expectations (forecasting) for future Federal Reserve policy. When making decisions regarding interest rates, the central bank primarily evaluates inflation dynamics and the state of the U.S. labor market. While we still need to assess the July CPI/PPI reports (the relevant reports will be published in mid-August), this week is dominated by U.S. employment indicators. The key release of the week—NonFarm Payrolls (NFP)—will be published on Friday. However, preliminary "second-tier" labor market indicators have already provided alarming signals. The JOLTs and ADP reports came in the red zone, heightening investors' concerns about further cooling in employment. Although individual components of the releases appear relatively neutral, the overall picture is quite unfavorable for the greenback.

JOLTs: Employers Becoming Cautious, Demand for Employees Decreasing

The June JOLTs report came in the red zone, reflecting a reduction in job openings. The figure fell to 7.259 million (down from May's revised figure of 7.537 million), a loss of nearly 180,000 vacancies. This indicates that employers are becoming significantly more cautious about expanding their workforce.

Moreover, the decline in job openings occurred in sectors that traditionally drive the U.S. labor market, including healthcare and social assistance, wholesale trade, professional and business services, and the leisure and hospitality sector. Although the increase in job openings in the transportation sector and government institutions partially compensated for this decline, the overall balance remained negative, indicating a gradual cooling of demand for labor.

Another concerning signal was the decrease in the job openings rate—from 4.5% to 4.4%. This metric reflects employers' demand for new employees, so its further decrease indicates that companies are becoming less inclined to expand their workforce and are more cautious in assessing their economic growth prospects.

For the sake of fairness, it should be noted that some components of the release looked better than expectations. For example, the number of hires rose to 5.348 million (up from 5.252 million), while the level of voluntary resignations remained unchanged from the previous month. However, these components essentially do not alter the overall trend. The increase in hiring was quite modest and did not accompany an increase in job openings. In fact, companies continue to close existing positions but are opening new ones significantly less frequently. This is one of the classic signs of a gradual cooling in the labor market.

July ADP Report: Half-Year Anti-Record

If the JOLTs report reflected a decrease in demand for workers, the ADP data released on Wednesday showed a direct slowdown in job creation. In July, the private sector in the U.S. created only 44,000 new jobs. This is the lowest value of the indicator since January of this year. For comparison, the figure for June (after revision) was 95,000. The consensus forecast expected an increase of 75,000. Thus, the actual result for July was almost half as weak as the previous month and significantly worse than market expectations.

The main contribution to the overall increase came from the education and healthcare sectors, while employment in several cyclical industries decreased. In particular, the leisure and hospitality sector lost about 11,000 jobs. This is an important point, as these industries are particularly sensitive to the state of domestic demand. Their weakening indicates a gradual cooling of consumer activity.

In a broader context, it is important to remember that the ADP report reflects employment dynamics only in the private sector, which traditionally responds fastest to changes in credit conditions and business activity. Therefore, this weak result also suggests that the current level of the Fed's interest rate is exerting increasingly noticeable pressure on businesses, limiting their willingness to expand their workforce and create new jobs.

Of course, the ADP reports do not always align with NonFarm Payrolls; however, recently both indicators have shown similar dynamics—a gradual slowing in job creation rates. Therefore, Wednesday's release should not be perceived as a random "deviation"; rather, it is another piece of the puzzle that paints a rather negative fundamental picture for the greenback.

What Do JOLTs and ADP Indicate?

The reports published on Tuesday and Wednesday create a fairly coherent picture of a gradual cooling in the U.S. labor market. JOLTs show a decrease in demand for labor through a reduction in the number of job openings. The ADP report, in turn, demonstrates that this weakened demand is already beginning to reflect in actual hiring. If this trend continues, the next step may be a rise in unemployment in the U.S.

This is why the published data significantly raise the importance of Friday's NonFarm Payrolls. If the official report shows yet another modest increase in employment, investors will be fully convinced that the cooling of the American labor market is becoming persistent. In that case, pressure on the dollar will increase, as the market will start pricing in a higher probability of easing Fed policy in the foreseeable future. As of Wednesday, this scenario looks quite likely: both JOLTs and ADP have already shifted the balance of risks toward weaker NonFarm Payrolls.

All of this suggests that the dollar is currently under pressure not only from decreasing anti-risk sentiment. The weakening labor market is also playing its role, allowing EUR/USD buyers to update local maxima. The pair is currently testing the resistance level of 1.1550 (the upper line of the Bollinger Bands indicator on the four-hour chart). If this level is overcome, buyers will open the path to the boundaries of the 16 figure and, in the future, to the resistance level of 1.1630, which corresponds to the Kijun-sen line on the W1 timeframe.