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Preview for NFPs - Outlook for DXY, EUR/USD, and USD/JPY

Preview for NFPs - Outlook for DXY, EUR/USD, and USD/JPY

2017-02-03 12:26:00
Christopher Vecchio, CFA, Senior Strategist
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Talking Points:

- Market consensus for today's US labor report is for +175K jobs, 4.7% unemployment rate; may be a bit 'cheap' given ADP showed +246K in its release on Wednesday.

- DXY Index attempting to base above 100; still needs to clear trendline going back to early-January highs.

- Join the DailyFX Live Trading Room today at 13:15 GMT for live coverage of NFPs with Currency Analyst David Song.

The key issue surrounding today's January US Nonfarm Payrolls report is whether or not the US labor market will give further indication that it is strong enough to justify multiple rate hikes in 2017. Current expectations for today's data are modest ('Goldilocks' if there ever was oe), with the Unemployment Rate expected to hold at 4.7%, and the headline jobs figure to come in at +175K. Wage growth is due in around +2.7% y/y, down from a four-year high in the prior reading.

The consensus expectation may be a bit cheap in context of data released over the past few days. Wednesday’s January US ADP Employment report showed +246K new jobs created in November, easily beating expectations of an increase of +168K. Likewise, the January US ISM Manufacturing index held steady at 55.0 (from 55.1 previously). Unfortunately, we don't have the latest US ISM Services Employment subindex to help guide our expectations this time around (due out later today). However, in sum, these proximal trackers of the US labor market correlate to roughly a +180-190K pace of jobs growth.

The trend of +200K jobs growth per month has recently been a psychological level for markets, but Fed leaders and centrists (the Goldilocks of the Fed; not too hawkish or too dovish) tend have another number in mind. In October 2015, San Fran Fed President John Williams wrote in a research note that he believed growth of +100K jobs per month was enough to sustain the growth in the labor force and maintain the current unemployment rate. In December 2015, Chair Janet Yellen reiterated this same view.

Per the Atlanta Fed Jobs Growth Calculator, assuming a 4.7% or 4.8% longer term unemployment rate, the economy only needs +109-121k job growth per month to sustain that unemployment rate over the next 12-months. As such, while today's jobs report may not be all that spectacular, these data would help reaffirrm the Fed's case to hike rates at least twice this year.

See the above video for a technical review of the DXY Index, EUR/USD, GBP/USD, AUD/USD, USD/JPY, Gold, AUD/JPY, and NZD/JPY.

Webinar Schedule for Week of February 5 to 10, 2017

Monday, 7:30 EST/12:30 GMT: FX Week Ahead: Strategy for Major Event Risk

Wednesday, 7:30 EST/12:30 GMT: Trading Q&A

Thursday, 7:30 EST/12:30 GMT: Central Bank Weekly

Read more: Webinar: Central Bank Weekly w/ Sr. Currency Strategist Christopher Vecchio

--- Written by Christopher Vecchio, Senior Currency Strategist

To contact Christopher Vecchio, e-mail cvecchio@dailyfx.com

Follow him on Twitter at @CVecchioFX

To be added to Christopher's e-mail distribution list, please fill out this form

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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