Is Uncle Sam preparing to print another strong jobs report?
Or are we about to see a pessimistic June Nonfarm Payrolls report?
Here’s what you need to know if you’re planning to trade this top-tier event:
Focus on the event:
Monthly US Employment Situation summary from the US government for June 2023
When will it be released:
July 7, Friday: 12:30 PM GMT
Use our forex market hours tool to convert GMT to your local time zone.
Expectations:
- US Non-Farm Payroll Change Monthly: 224K Expected vs. 339K Previously
- US Average Hourly Earnings Monthly: +0.3% mom-in-expected vs. -0.3% mom-to-be
- US Unemployment Rate: expected 3.6% vs. 3.7% previous
Employment activity is expected to be slightly slower at 224K in June compared to last month’s increase in employment by 339K. This may be enough to reduce the unemployment rate from 3.7% to 3.6%.
Meanwhile, wage growth is expected to remain consistent with a further 0.3% increase in average hourly earnings. Now this data point could be a major driver of dollar direction since higher wages tend to translate into stronger consumer inflation.
Relevant US data since the last US Nonfarm Payrolls report:
🟢 Arguments for Strong Jobs Update / Bullish Dollar
- CB Consumer Confidence Index for June An improvement from 102.5 to 109.7, as the assessment of current works and working conditions increased from 148.9 to 155.3
- Initial weekly unemployment claims It was trending gradually upwards in the first three weeks of June, before making its biggest weekly improvement since October 2021 in the week ending June 24.
🔴 Arguments for updating weak jobs / falling dollar
- ISM Manufacturing PMI for June This came in below expectations, as the employment component fell from 51.4 to 48.4 and indicates a contraction.
- S&P Global Manufacturing PMI for June The industry contraction of 46.3 reversed, as did employment “He was generally humbler and softer than he was in May.”
Note: ADP’s non-farm payroll change number, Challenger’s job cuts, JOLTS and ISM Services PMI will be released on July 6.
Previous issues and the impact of the risk environment on the US dollar
June 2, 2023
Action / Results:
The May Nonfarm Payrolls report released another set of stronger-than-expected results, as the US economy added 339K jobs against an estimated gain of 180K.
Although the unemployment rate came in at 3.7% against the expected increase from 3.4% to 3.5%, components of the report revealed that this is mostly due to higher labor force participation.
Average hourly earnings came in just below expectations with a slight increase of 0.3% versus the expected increase of 0.4%.
Overall, this led to a major boost for the US dollar across the board on Friday, as dollar traders revived their hopes for a June Fed hike rather than a “Fed pause”.
The rally was mostly enough to pare losses earlier in the week when debt ceiling concerns were in focus and two Fed officials spoke of “skipping” a June rate hike.
Risk Environment and Internal Market Behaviors:
This trading week had a slow start, as European and US banks were in holiday mode on Monday. A bit of optimism weighed on the safe-haven dollar at the time, after weekend headlines that US lawmakers had reached a tentative deal on the debt ceiling.
Expectations of a possible Fed pause in June and an expected strength of China’s Caixin Manufacturing PMI also fueled risk appetite around midweek, pushing the low-yielding dollar south.
May 5, 2023
Action / Results:
The April non-farm payrolls report came in stronger than expected at 253k, beating the consensus of 190k and leading to an improvement in the unemployment rate from 3.5% to 3.4%.
Wage growth was also above expectations, with the average hourly earnings figure showing an increase of 0.5% against the consensus of 0.3%.
However, the previous month’s reading suffered a significant drop from the initially reported figure of 236K to just 165K, indicating that the business situation is not as rosy as it appears.
The dollar was weak earlier, but managed to rally when the upbeat headline numbers were printed. Then again, the rally was quickly fizzled out by profit-taking before the week was over.
Risk Environment and Internal Market Behaviors:
Weak liquidity and market volatility from banking sector woes set the stage for a range-bound start to this trading week.
The volatility started once the Reserve Bank of Australia, Federal Reserve, and European Central Bank took the stage in their interest rate decisions. These central banks showed a shift to a more dovish stance regarding policy, which led to a pickup in risk appetite in the middle of the week.
It didn’t help that two of the leading US jobs indicators came out weaker than expected, fueling expectations of weaker non-farm payrolls (NFP) and also losses for safe havens.
price movement probabilities
Possibilities of feeling risky:
Minutes of the midweek FOMC meeting, before another slew of leading jobs indicators were printed. This is likely to set the tone for the dollar’s price action ahead of the official NFP release on Friday.
We’ve heard a lot from Fed officials in recent weeks, including continued hawkish comments from Fed Chair Powell last week at the European Central Bank’s Central Banking Forum, so unless we get a surprisingly dovish tone from the Fed minutes , it will have an impact on the US dollar and the US dollar. Risk sentiment may be limited.
For now, barring any major news surprises with the leading indicators of US jobs, broad risk appetite with some anti-dollar moves could be the mood for Friday’s jobs release.
US dollar scenarios
Base case:
Based on previous releases, dollar traders are likely to have a strong reaction to the headline numbers before taking fundamental components and prevailing market sentiment into account.
Another cadence in non-farm payrolls will surprise the 15th consecutive monthly rise, which may reassure market players that the US jobs market is showing no signs of slowing down.
In this scenario, the dollar may be able to benefit from the prospect of higher US borrowing costs, as well as the risk aversion caused by the impact of hardening policy on global economic activity.
This could close the Fed’s position among the more hawkish major central banks, which could be both fundamental and technical buyers in USD longs, especially against other currencies with dovish or dovish policy stances (NZD and JPY).
Alternative scenario:
If the actual numbers come in lower than estimates, that would limit the long streak of NFP surprises, and possibly lead traders to acknowledge a peak in hiring or warning signs of a downturn in the jobs market.
A markedly weak outcome luring investors/traders of all walks of life into another July pause, setting the stage for higher risk and a headwind environment for the dollar.
In that case, watch out for potential USD short plays against currencies whose central banks seem very keen to clamp down in the near term (GBP and EUR).
