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Preview for NFPs and Trade Setups for DXY, EUR/USD, & USD/JPY

Preview for NFPs and Trade Setups for DXY, EUR/USD, & USD/JPY

2017-03-10 12:00:00
Christopher Vecchio, CFA, Senior Strategist

Talking Points:

- February US Nonfarm Payrolls report expected to be a big one - possibly north of +250K - after strong ISM Services, ADP figures.

- From a contrarian's point of view, a miss on the data today would offer more opportunity than a strong figure overall.

- Ahead of the US labor data, the retail crowd is net-short USD/JPY, net-long AUD/USD, and net-long GBP/USD - a favorable mix for more US Dollar strength.

Join me today at 8:15 EST/13:15 GMT for live coverage of the February US Nonfarm Payrolls report in the DailyFX Live Trading Room - register here.

The key issue surrounding today's February US Nonfarm Payrolls report is whether or not the US labor market will give further indication that it is strong enough to justify three rate hikes during the rest of 2017. With Fed funds futures contracts already pricing in a 100% chance of a rate hike when the FOMC meets on Wednesday, March 15, today's data is more or less a 'cherry on top' of rate hike expectations. Instead, market participants will be paying attention to the wage component of the report in particular, which has been admittedly lacking gusto despite the unemployment rate holding near the Fed's defintion of "full employment" (at 5% or lower) since for October 2015.

Current expectations for today's data are undoubtedly among the strongest they've been in years, with the unemployment rate expected to drop from 4.9% to 4.7%, and the headline jobs figure to come in at +200K. Wage growth is due in around +2.7% y/y, slightly off of the +2.8% figure seen in December 2016, which was a seven-year high.

The aggregate forecast heading into this report has jumped higher the past few days. Wednesday’s February US ADP Employment report showed +298K new jobs created last month, easily beating expectations of an increase of +185K. Likewise, the February US ISM Services/Non-Manufacturing index increased to 57.7 (from 56.5 previously). Using a 10-year rolling model, the ADP report and the ISM Services report can account for 92% of the changes in the NFP figure (R^2 = 0.92). In sum, these proximal trackers of the US labor market correspond with pace of jobs growth north of +250K. Needless to say, expectations are quite high.

With respect to the NFP report on Friday, so long as it comes in above +100K, the jobs data will merely be the 'cherry on top' of the March rate hike 'cake' that Fed Chair Janet Yellen (among other Fed policymakers) put the 'icing' on last week. As the Atlanta Fed Jobs Calculator shows, for the US economy to maintain its current 4.9% unemployment rate (U3) through the end of 2017, no more than +108K jobs need to be added per month.

After the data, we'll be keeping an eye on the Fed rate hike expectations curve, which currently shows the markets pricing in a 100% chance of a first rate hike this year in March, a 74% chance of a second rate hike this year in September, and a 60% chance of a third rate hike this year in December.

See the above video for a technical review of the DXY Index, EUR/USD, GBP/USD, USD/JPY, USD/CAD, Crude Oil, EUR/GBP, EUR/JPY, and GBP/JPY.

Webinar Schedule for Week of March 12 to March 17, 2017

Monday, 8:30 EDT/12:30 GMT: FX Week Ahead: Strategy for Major Event Risk

Wednesday, 7:00 EST/11:00 GMT: Trading Q&A

Thursday, 8:30 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

Follow him on Twitter at @CVecchioFX

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