- USD has rebounded strongly since mid-September, and risks look skewed higher
- Survey spread of NFP estimates shows large uncertainty ahead of Friday print
- IGCS looks to favor further USD strength as retail long positions increase in GBP/USD
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Ahead of Friday’s Non-Farm Payroll release for September, the Dollar is looking ready to be taken seriously once again. After spending February through August in sell-off mode, the US Dollar Index is working toward key resistance and USD-crosses like EUR/USD, GBP/USD, and USD/JPY are all near a point where USD strength could become a theme again.
However, traders should anticipate some volatility around this NFP for a multitude of reasons. First, certainty around what the number is likely to have not been this low in some time. In other words, the spread between economist’s high estimates and low estimates are at the widest at 305k per Bloomberg in over seven years. Much of the uncertainty has to do with the confusion about how dramatic the multitude of hurricanes to hit the US will affect payrolls.
Another potential reason for the volatility is the positive slew of economic prints that could further enforce the potential for a tightening Fed. On Wednesday, ISM non-manufacturing brought about a clear message, albeit one likely affected by the hurricane as well, that prices were aggressively on the rise. Rising prices is how inflation is defined and a precedent to a tightening Federal Reserve through rate hikes that could lead to a stronger USD as well.
In addition to the NFP print on Friday is the background of the steadily rising USD. From a strong/ weak perspective, the US Dollar has quietly moved to the number two spot in the G8, and a move below 1.3180 on GBP/USD would be a catalyst for USD to take the top spot. The significance of being the strongest or weakest in the G8 is that momentum can be a leading component of markets as there tends to be a piling on of the trade or in the case of the weakest a bit of capitulation.
For those wanting a preview of what numbers are expected for Friday’s news announcement, here are the expectations. First, as can be seen on the DFX Economic Calendar, the expectation for the headline print for the September Change in Nonfarm Payrolls is expected at 90k, down from the prior reading for August of 156k.
However, beyond the headline number, the focus will be placed on Average Hourly Earnings (AHE) given the recent rise in inflation in other reports like the ISM non-manufacturing. Since 2015, AHE has risen from 1.9% Year over Year to a high of 2.9% in December 2016. However, we have seen a downtrend in 2017 that aligns with the weakness in the US Dollar. A move higher back toward 2.9% y/y would likely ignite fears that US inflation is turning the corner and we could see recent USD strength extend to further retrace the 9% drop in DXY over 2017. The expectations for AHE YOY% is 2.5%, which would be a tick up from the prior reading of 2.5%.
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While you will want to watch the headline number, the most important aspect that you can expect the DailyFX analyst’s like Chris Vecchio, David Song, and Michael Boutros to cover and what will likely drive the market post-NFP is the digestion and potential ramifications of the AHE number from NFP aside any new insights from the debt ceiling concern.
You will not want to miss our live coverage, and you can register here for free.
These reasons and more are exactly why you should join us on Friday 15 minutes before the prints through 15 minutes after the 8:30 PM print to see what trading opportunities may emerge.
For your sake, we hope to see you there!
All eyes on DXY For Friday’s September NFP As DXY Recovery Meets Its Biggest Chart Test Yet
DailyFX Analyst Team