- Ahead of the US jobs report, rates markets (per Fed funds futures) are pricing in a 73% chance of a Fed rate hike in December.
- Expectations for the headline NFP figure have turned higher after the ADP Employment report showed that the US economy added +250K jobs last month.
- Retail trader sentiment continues to suggest weakness among the major USD-pairs.
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The US Dollar (via DXY Index) is continuing to claw back its weekly losses, with the DXY Index almost back to unchanged on the week ahead of the December US Nonfarm Payrolls report this morning.
Price action has been decidedly bearish for the DXY Index over the past few weeks, holding below its daily 8-, 13-, and 21-EMAs; and both MACD and Stochastics remain trending lower, nestled comfortably in bearish/negative territory. For now, however, the weekly low is holding at 93.78, coincidentally the post-September FOMC meeting swing low on September 22.
Chart 1: DXY Index Daily Timeframe (August 2017 to January 2018)
Current expectations for today's data have improved over the last 24-hours, after better than expected ADP Employment report showing that the US economy added +250K jobs last month. Unfortunately, while the ADP report in conjunction with the ISM Services report serve as contemporaenous indicators, we don't get the ISM Services data until 90-minutes after the December NFP is released. Accordingly, according to a Bloomberg News survey, the unemployment rate expected to hold at 4.1%, and the headline jobs figure to come in at +190K. Wage growth is due in around +2.5% y/y.
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 +109K jobs for the next 12-months to maintain the unemployment rate at 4.1%.
From this point of view, the US Dollar's bearish posture could erode heading into next week, particularly if US Treasury yields continue trending higher, the US Dollar remains a favorable 'buy the dip' candidate against the lower yielding safe haven currencies like the Japanese Yen.
Chart 2: USD/JPY Daily Timeframe (January 2017 to January 2018)
USD/JPY has been trading in a sideways range for the past 12-months, with the recent swing highs since April 2017 capped off near 114.60. The pair does however have a burgeoning bullish technical structures ahead of the US jobs data today. In USD/JPY, price is above the 8-, 13-, and 21-EMA envelope, while MACD and Stochastics are in bullish territory (above the median or neutral lines). Accordingly, we'll be watching for a break of the December 12 high of 113.75 to signal that a swing into the 12-month range highs is due up next.
--- Written by Christopher Vecchio, CFA, Senior Currency Strategist
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