Preview for August NFPs and Implications for USD-pairs
- USDOLLAR Index rebounds at former symmetrical triangle resistance.
- USD/JPY primed to have an uninspiring day.
- As market volatility is set to rise with summer ending, it's a good time to review risk management principles.
The key issue surrounding today's August US Nonfarm Payrolls report is whether or not the US labor market is strong enough to justify a Fed rate hike in September. Current expectations for today's data are modest, with the Unemployment Rate expected to edge slightly lower to 4.8%, and the headline jobs figure to come in at +180K. See the DailyFX economic calendar for today for the rest of the data previews.
Another modest print may prove to be better for the US Dollar rather than for risky assets (higher yielding currencies, equities, and high yield debt): a signs that the US labor market is still chugging along (albeit at a moderated pace as 'full employment' is reached') means the Fed will be more likely to hike. Fed officials, including Fed Chair Janet Yellen and FRB of San Francisco President John Williams have both said that breakeven jobs growth is only around +100K per month, for what it's worth.
After Fed Chair Janet Yellen's speech at the Jackson Hole Economic Policy Symposium last Friday, it seems that markets are in agreement with the notion that the Fed will hike at least once this year: but there is only one rate hike being priced in, due in December (table 1 below).
Table 1: Fed Funds Futures Contract Implied Probabilities: September 2, 2016
A stronger NFP print (>+200K) can help bring forward rate expectations, which should help the USDOLLAR Index establish itself back above the key 12000/05 area. A weaker or middling report will do little to convince markets that a hike is coming this month (and unlikely to be in November, when the Fed doesn't release its updated SEP). The US Dollar just needs another 'Goldilocks' report (+150-199K) to convince market participants that a September hike is more likely than currently anticipated.
--- Written by Christopher Vecchio, Currency Strategist
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