- Ahead of the US jobs data today, rates markets are pricing in over an 80% chance of a Fed rate hike in December.
- Expectations for the headline NFP figure are so low because of the impact of Hurricanes Harvey and Irma on the southeastern United States.
- Retail trader sentiment continues to shift in a way that suggest USD-pairs may still turn higher.
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The US Dollar (via DXY Index) is trading near its highest level in a month ahead of the the September US Nonfarm Payrolls report this morning. Price action remains bullish for the DXY Index, holding above its daily 8-, 13-, and 21-EMAs; and with both MACD and Stochastics continue to trend higher above their respective signal or neutral lines. Prior to the US jobs data today, Fed funds futures are pricing north of an 80% chance of a hike by December.
Current expectations for today's data remain are modest, even after better than expected ADP and ISM Services figures earlier in the week, with the unemployment rate expected to hold at 4.4%, and the headline jobs figure to come in at +80K. Wage growth is due in around +2.5% y/y. Using a 10-year rolling model, the ADP report and the ISM Services report can account for 89% of the changes in the NFP figure (R^2 = 0.89). In sum, these proximal trackers of the US labor market correspond with pace of jobs growth between +125 to +150K.
Why do these figures appear to be far below recent trends? Hurricanes Harvey and Irma that made landfall in the southeastern United States will have a negative impact on job creation figures. The forthcoming report this morning may offer little if any meaningful insight into trends underlying the US labor market.
The big picture: so long as it comes in above +75K to +125K, the jobs data will be good enough to keep the economy on track to maintain the unemployment rate (U3) at 4.3% through the end of 2017 (as per Fed Chair Janet Yellen's commentary at the end of February). The Atlanta Fed Jobs Calculator shows that the US economy needs to add +113K jobs each month for the rest of 2017 to maintain the unemployment rate at 4.4%.
From this point of view, the US Dollar's bullish posture should remain intact heading into next week, regardless of what the September US Nonfarm Payrolls report reveals.
--- Written by Christopher Vecchio, CFA, Senior Currency Strategist
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