Expectations Running High For NFP

Andreas Thalassinos
Andreas Thalassinos

08.3.2024

Expectations are running high as traders brace for the next NFP release, which is scheduled for later today.  Consensus estimates project a job addition of 198,000 for the month, with the unemployment rate forecast to be 3.7%.  It is crucial for market participants to pay attention not only to the headline figures but also to underlying details, such as wage growth and labor force participation.

Overview

Expectations are running high as traders brace for the next NFP release, which is scheduled for later today.  Consensus estimates project a job addition of 198,000 for the month, with the unemployment rate forecast to be 3.7%.  It is crucial for market participants to pay attention not only to the headline figures but also to underlying details, such as wage growth and labor force participation.  Traders will closely monitor the market today due to significant economic data releases and their potential impact on the US Dollar.

Upcoming Economic Events

Friday 01:30 pm (GMT): Average Hourly Earnings
Friday 01:30 pm (GMT): Nonfarm Payrolls
Friday 01:30 pm (GMT): Unemployment Rate

The Nonfarm Payrolls (NFP) report, a key economic indicator released by the US Bureau of Labor Statistics, has long been a focal point for investors and traders seeking insights into the health of the US labor market.  The upcoming NFP release is eagerly awaited, especially after the previous report that provided both surprises and implications for the  US dollar and related currency pairs.

Review of Previous NFP Release

Last month, the US Bureau of Labor Statistics (BLS) published its report on Nonfarm Payrolls (NFP), disclosing that NFP increased by 353,000, which exceeded the market forecast of 187,000. 
Meanwhile, the Unemployment Rate remained constant at 3.7% for the third consecutive month.  The Labor Force Participation Rate also remained unchanged at 62.5%.  Additionally, the average hourly earnings for all employees on private nonfarm payrolls rose by 19 cents, or 0.6 percent, to $34.55.  The annual wage inflation, as measured by the change in Average Hourly Earnings, increased from 4.1% to 4.5%.  These observations indicated a positive US labor market trend, significantly impacting EURUSD, GBPUSD, and USDJPY, respectively.

Impact on the US Dollar (USD)

The USD's reaction to the upcoming NFP report is likely to be influenced by the extent to which the actual figures deviate from expectations.  A robust jobs report exceeding forecasts may strengthen the USD, signaling economic strength and raising expectations for the Federal Reserve's earlier-than-anticipated interest rate cut .  Conversely, a disappointing report may weaken the USD, leading traders to reassess the pace of the US economic recovery.

Currency Pairs to Watch

EUR/USD:
The EUR/USD pair often exhibits an inverse relationship with the USD.  A stronger-than-expected NFP report may lead to a decline with potential targets at 1.08884 and 1.07964, while a weaker report could contribute to its appreciation up to 1.1000 and 1.10373.

USD/JPY:
The USD/JPY pair is sensitive to changes in market sentiment and US economic indicators.  Positive NFP figures may pull the pair to 149.207 and 150.884.  On the other hand, negative data could result in a decline to 145.895 and 144.349.

GBP/USD:
The GBP/USD pair may experience volatility based on the NFP release.  A strong report could cause the exchange rate to dip toward 1.27501 and 1.27096.  Conversely, a weak report may lead to an appreciation of 1.28874 and 1.30652.

Technical Analysis

The EURUSD currency pair followed a downward trajectory since December 28, 2020, after reaching a high price of 1.11396.  This price action led to the formation of a technical reversal to the downside, known as the failure swing.  The subsequent formation of successively lower peaks and lower troughs breached consecutive support levels until the forces of supply and demand eventually found equilibrium at 1.06945.

Following this, the resistance at 1.08884 was violated, and a reversal to the upside was formed, which was traced by the higher trough at 1.07964 and the corresponding peak at 1.08884.  This pull in the exchange rate resulted in it reaching the 161.8% Fibonacci extension.  Both the 50-period Moving Average and the Momentum Oscillator support the upward scenario.  Specifically, prices are trading above the Moving Average line, and the Momentum Oscillator is recording levels above the 100 baseline.

Potential Upside Targets

Should the NFP results fall short of expectations and negative sentiment dominates the market, there are four potential upside targets that traders may consider:

1.00000: The first target stands at 1.00000, representing the peak on January 11.
1.10373: The second target can be identified at the 261.8% Fibonacci extension of the previous swing, extending from the high at 1.08884 to the low at 1.07964.
1.11396: The next potential price target is estimated at the high price reached on December 28.
1.11861: The fourth price objective can be determined at 1.11861, corresponding to the 4.236% Fibonacci extension traced from the swing top at 1.08884 down to the swing bottom at 1.07964.

Potential Downside Targets

In case NFP jobs exceed expectations, traders may consider the following potential price objectives:

1.08884: The first target stands at 1.08884, representing the peak marked on February 22.
1.07964: The second price objective is estimated at the support level of 1.07964 representing the trough established on February 28.
1.07634: An additional downside target is observed at 1.07634, mirroring the second support level of the weekly Pivot Point.
1.06945: Lastly, a potential support level could be calculated at 1.06945, aligning with the lowest trough linked during the last downtrend.

Conclusion and Considerations

The NFP payroll report remains a crucial economic indicator capable of influencing the direction of the US dollar and related currency pairs.  Traders and investors should stay alert and be prepared to adjust their strategies based on the actual results compared to market expectations.  The upcoming release holds the potential to shape market sentiment and impact global currency markets, making it a focal point for financial participants in the coming sessions.

 

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Andreas Thalassinos
Andreas Thalassinos

Andreas Thalassinos is a recognized authority in the financial markets and world renowned for his expertise in algorithmic trading. He is a Certified Technical Analyst and highly respected lecturer in the education of traders, investors, and financial markets professionals. Thalassinos has played a key role in the development of education within the industry, training tens of thousands of traders of all skill levels. Traders value his seminars and workshops for the rich content, his passionate, charismatic, and lively presentations.