Financial market overview

NFP Preview: Why the US Dollar Could Be More Volatile Than Usual

2024.02.02 03:50

NFP Key Points

  • NFP report expectations: +187K jobs, +0.3% m/m earnings, unemployment at 3.8%
  • Leading indicators level towards an nearly dead-on expectations studying on this month’s NFP report, with headline job development in the 165K-215K vary
  • The current consolidation in the US Dollar Index and the Fed’s renewed information dependence may result in a more-volatile-than-usual response in the US greenback.

When is the January NFP Report?

The January NFP Report can be launched on Friday, February 2, at 8:30 ET.

NFP Report Expectations

Traders and economists anticipate the NFP report to point out that the US created 187K internet new jobs, with common hourly earnings rising 0.3% m/m (4.1% y/y) and the U3 unemployment price ticking as much as 3.8%.

NFP Overview

Tomorrow brings the first NFP report overlaying 2024 information, and based mostly on the market’s expectations, the jobs market might have gotten off to a robust begin to the new 12 months:

NFP Report

Source: StoneX

In the wake of Wednesday’s FOMC assembly, I anticipate jobs (and inflation) information to tackle a renewed significance for merchants. Fed Chairman Powell famous that the central financial institution doesn’t essentially must see enhancing financial information to begin slicing rates of interest, simply extra of the identical stable information that we’ve seen over the final six months; nevertheless, he additionally famous that a slowdown in the labor market may immediate earlier rate of interest cuts, implying that the subsequent few jobs studies can be notably vital.

NFP Forecast

As common readers know, we concentrate on 4 traditionally dependable main indicators to assist handicap every month’s NFP report, however given the vagaries of the calendar this month, the ISM Services PMI report received’t be launched till Monday, leaving simply three main indicators of be aware:

  • The ISM Manufacturing PMI Employment part ticked all the way down to 47.1 from 47.5 final month.
  • The ADP Employment report confirmed 107K internet new jobs, a considerable lower from final month’s downwardly-revised 158K studying.
  • Finally, the 4-week shifting common of preliminary unemployment claims held regular at 208K, primarily unchanged from final month.

Weighing the information and our inside fashions, the main indicators level to an nearly dead-on expectations studying on this month’s NFP report, with headline job development doubtlessly coming in someplace in the 165K-215K vary, albeit with an even bigger band of uncertainty than traditional given the present international backdrop.

Regardless, the month-to-month fluctuations on this report are notoriously tough to foretell, so we wouldn’t put an excessive amount of inventory into any forecasts (together with ours). As at all times, the different features of the launch, prominently together with the closely-watched common hourly earnings determine which got here in at 0.4% m/m in the most up-to-date NFP report.

Potential NFP Market Reaction

Potential NFP Market ReactionPotential NFP Market Reaction

As we element under, the noticed a robust rally to begin the new 12 months however has principally consolidated in a good vary over the final couple of weeks, leaving a comparatively impartial outlook towards the foreign money heading into the jobs report. That stated, the current consolidation and the Fed’s renewed information dependence may result in an outsized transfer in the on the again of this month’s NFP studying.

US Dollar Technical Analysis – DXY Daily ChartUS Dollar Index-Daily ChartUS Dollar Index-Daily Chart

Source: TradingView, StoneX

Looking at the broad US Dollar Index (DXY), the most related technical consideration is the tight 2-week consolidation between 103.00 and 103.80. The prime of this vary is marked by DXY’s 200-day EMA and the 50% Fibonacci retracement of the November-December drop, representing a key confluence of resistance ranges that bulls must overcome in the occasion of a robust jobs report.

While the present technical and elementary backdrop doesn’t essentially supply a robust directional bias forward of the NFP report, it presents a doubtlessly clear medium-term setup: If DXY breaks out above 103.90 on the again of a robust jobs report, the path to 104.60 and even the mid-105.00s is comparatively clear, whereas a tender jobs report and a break under 103.00

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