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Preview for November US NFP and Outlook for Key USD Pairs

Preview for November US NFP and Outlook for Key USD Pairs

Christopher Vecchio, CFA, Senior Strategist

Talking Points:

- 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.

Upcoming Webinars for Week of December 3 to 8, 2017

Today at 8:15 EST/12:15 GMT: Live Event Coverage: US NFP (NOV)

See the full DailyFX Webinar Calendar for other upcoming strategy sessions

The US Dollar (via DXY Index) is trading back near its highest level in two weeks ahead of the the November US Nonfarm Payrolls report this morning. Price action has started to turn more bullish for the DXY Index, holding above its daily 8-, 13-, and 21-EMAs; however, both MACD and Stochastics have just started to turn higher, and are nestled comfortably in bearish/negative territory.

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 4.1%, and the headline jobs figure to come in at +196K. Wage growth is due in around +2.7% 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 +180K to +210K.

Overall, as long as the headline in today's jobs report 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 4.1% through the end of 2018. The Atlanta Fed Jobs Calculator shows that the US economy needs to add +110K jobs for the next 12-months to maintain the unemployment rate at 4.1%.

From this point of view, the US Dollar's bullish posture should remain intact heading into next week. Yet given the fact that the labor market isn't necessarily being watched closely as the decision trigger for the next rate hike, today's data may have a limited impact.

Certainly, no change are Fed rate hike expectations is expected. Coming into today, as they have been since October 26, Fed funds are pricing in a 100% chance of a rate hike next week. What hasn't been reflected thus far is what a downgrade in inflation expectations might bring.

Accordingly, in the event that the November US Nonfarm Payrolls report turns out better for the US Dollar, we see it as an opportunity to 'sell the rally' into the FOMC meeting on Wednesday.

See the above video for technical considerations in the DXY Index, EUR/USD, GBP/USD, USD/JPY, AUD/USD, USD/CHF, Gold, and US yields.

Read more: US Assets Taking Divergent Paths: Stocks Look Healthy, the Dollar Doesn’t

--- Written by Christopher Vecchio, CFA, 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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