Will the US Nonfarm Payrolls (NFP) Change About The Recent Negative Sentiment In The Dollar?
Here are some data points to know if you plan to trade the event:
Focus on the event:
Monthly US Employment Situation summary from the US government for April 2023
When will it be released:
May 5, Friday: 12:30 PM GMT, 1:30 PM London time, 8:30 PM New York, 9:30 PM Tokyo
Expectations:
- US Nonfarm Payroll Change Monthly: 190K vs. 236K Previously
- US Average Hourly Earnings Monthly: +0.3% mom-in-expected vs. -0.3% mom-to-be
- US Unemployment Rate: 3.6% expected vs. 3.5% previously
Based on the April figures from ADP’s US Private Payrolls report, as well as the ISM PMI Employment Index and S&P Global PMI data, the US Nonfarm Payrolls report is likely to show continued resilience in the US jobs environment, but signs of cooling.
The average earnings data point is likely to be a major driver of market sentiment as well. Accelerating/decelerating wage growth will be seen as a factor for inflation expectations, as well as expectations for workers returning to the workforce or opportunities to switch jobs.
Relevant US data since the last US Nonfarm Payrolls report:
🟢 Arguments for Strong Jobs Update / Bullish Dollar
- US Private Sector Payrolls for April: +296K (+140K forecast) vs. -142K in March
- The ISM Manufacturing Employment Index for April increased by 3.3 to 50.2
- US Initial Weekly Unemployment Claims for the week ending April 22: 230K vs. 246K in the prior week
- S&P Global US Manufacturing PMI for April: “Growth in private sector employment figures was the fastest since last July”; “The rate of job creation accelerated to the fastest since September 2022 and was generally strong. There has been an increase in the availability of candidates, with companies hiring to support production growth,” panelists mentioned.
- S&P Global US Services Business Index Survey for April: “Squeezing capacity and a modest backlog of work resulted in the fastest rise in hiring for service providers since July 2022.”
- The ISM Services PMI Employment Index for April fell to 50.8 from 51.3 previously
🔴 Arguments for updating weak jobs / falling dollar
- Continuing US jobless claims rose to the highest level since November 2021 at 1.87 million as of April 8, indicating difficulty finding new work.
- Initial jobless claims in the US increased by 11K to 239K in the week ending April 8th. California — the epicenter of recent tech layoffs — accounted for more than a third of the increase.
- Layoffs in the United States have grown to their highest levels since 2000; the smoking cessation rate fell to 2.5% (lowest in two years); Employment opportunities decreased from 10 million to 9.59 million
Previous issues and the impact of the risk environment on the US dollar
April 7, 2023
USD Pairs Overlay: 1-Hour Forex Planned by TV
Action / Results: The US Nonfarm Payrolls for March came mainly within expectations at 236K (238K expected) vs. February’s upwardly revised 326K.
The unemployment rate fell to 3.5% from 3.6% and the average hourly wage rate rose to 0.3% on a monthly basis, indicating resilience in the US employment environment. This increased the odds of the Fed remaining aggressive in its battle against inflation, which is likely the reason for the US dollar’s rebound before Friday’s close.
After the event volatility was relatively muted relative to price action earlier in the week for the USD, likely due to numbers that came in very close to expectations.
Risk Environment and Internal Market Behaviors: This week in April was dominated by several first-tier events, but the highlight was probably the series of US economic/reconnaissance updates that pointed to an economic slowdown in the US.
Risky assets traded most of the week in the red, with the exception of oil prices which rose after a surprise announcement by OPEC+ to cut oil production starting in May.
March 10, 2023:
USD Pairs Overlay: 1-Hour Forex Planned by TV
Action / Results: The US dollar broadly traded higher in the week leading up to the release of the Nonfarm Payrolls report, correlating with hawkish comments from Fed Chair Powell that suggested more interest rate tightening ahead.
The dollar finally fell during the jobs announcement on Friday, although the February number came in at 311K (225K forecasts). It was still lower than the previous month’s gains and the unemployment rate rose to 3.6%.
Also, average hourly earnings came in below expectations at 0.2% mom (0.3% mom forecast), which dampens the argument slightly for the strong rate hike expectations.
Risk Environment and Internal Market Behaviors: The broad risk sentiment was very hated during this trading week in April thanks to many factors including the negative Chinese GDP outlook, hawkish comments from Fed officials on tightening monetary policy, and the infamous failure of the Silicon Valley bank.
price movement probabilities
Possibilities of feeling risky:
Based on price action within the market so far this week with gold prices higher and everything else lower, the risk sentiment is leaning heavily towards net negativity. This is likely a result of weak PMI updates from China and Europe, as well as the notable risk-averse reaction to negative US layoffs and job openings update on Tuesday.
The FOMC statement on Wednesday also appears to have had a bearish effect on broad risk sentiment, perhaps due to the notion that the Fed hasn’t completely shut itself off from the idea of future rate cuts in the future. This could be the main driver for the broad markets, at least through Thursday’s Asia and London sessions as they haven’t yet had a chance to trade the event.
US dollar scenarios
Since there are so many data points (net job change, unemployment rate, average wages, etc.) There are many combinations of outcomes, which reduces the probability of calling the correct event outcome and price reaction.
And based on recent releases, there will probably be enough directional movement in the reaction to pick up a few pips in the session, reducing the need to jump in early in the move to create a proper risk reward setup.
Base case:
With leading indicators pointing to a slower growth rate but a resilient net jobs environment, it’s likely that if the actual numbers come out inline or better, traders could seek the Fed’s return to more aggressive monetary policy rhetoric, especially after it softened its stance a bit with the committee’s statement. Federal Open Market Today.
The dollar bulls might jump in on this scenario, especially if we see the greenback drop against the majors as Friday’s event approaches, and/or risk sentiment turns lower on Friday.
If you are interested in a long USD position in this scenario, it is best to look at potential USD longs against currencies whose central banks have stopped raising interest rates recently, such as the Canadian dollar and the New Zealand dollar.
Alternative scenario:
If the actual numbers come out worse than expected, traders could entertain the idea that the Fed is pulling back further given the aggressive monetary policy talk. For now, Fed Chair Powell has indicated that the door is not open on the possibility of rate cuts, but remains open on the possibility of further tightening if needed.
But if US employment data indicates that the business environment has weakened significantly, that could attract some dollar sellers on the idea that Powell may start to change his tune.
Dollar selling odds high if the greenback is able to post some gains ahead of the event, and it would make sense to look at potential short positions in USDGBP and EUR, especially if we get a hawkish monetary policy statement from the European Central Bank this week.
If your sentiment towards risk is skewed towards risk aversion, take a look at the short term setups of the USD on the JPY and CHF due to their ‘safe haven’ status among traders. Or at XAU / USD As for the long strong technical setups, gold has performed very well against the US dollar in various environments so far this year.