Friday’s job report is undoubtedly the week’s most significant data release out of the US. However, ahead of that, other events also have the capacity to steer the greenback in either direction.
Nonfarm payrolls are projected to have increased by 312k in October. This is in stark contrast to September’s decline by 33k which marked the first time since 2010 that the economy experienced a reduction in positions. However, one should acknowledge that last month’s fall does not point to a weak economy, but to the negative effects of the devastating storms that have hit the US during September.
Ahead of the previous month’s report, expectations were for a rise in nonfarm payrolls by 90k. Despite the fall, the greenback recorded strong gains relative to majors as the numbers went public. Why so? Due to the storms, market participants assigned less weight on the number of positions and instead focused on the figures for average hourly earnings. Those surprised to the upside, growing by 2.9% year-on-year, within close distance of 3-4%, the range Fed chief Janet Yellen labelled as healthy growth in earnings.
The upcoming report will be biased upwards in terms of positions added to the economy relative to September’s as a result of the recovery mode the economy has naturally entered following the extreme natural phenomena hitting US soil. It is thus likely to again be the case that investors’ attention would fall on wage growth rather than on the number of jobs added to the economy.
Projections are for average earnings to increase by 0.2% m/m and 2.7% y/y, slowing down from September’s 0.5% and 2.9% respectively. An upside surprise is expected to lead to a decline in euro/dollar, with the pair potentially finding support in the area around 1.1481, this being the 38.2% Fibonacci mark of the March 2 to September 8 upleg that saw the pair touching 1.2092, a near three-year high at the moment. Should wage growth fall short of expectations, then it is projected that euro/dollar would head higher with the range around 1.1717 – the 23.6% Fibonacci level of the aforementioned upleg – possibly acting as resistance.
Beyond Friday’s much-anticipated release, investors are also paying attention to the Fed meeting that ends later today (no change in rates is expected), President Trump’s pick to lead the Fed (he indicated that will proceed with an announcement on Thursday) and developments on the tax front (Republican lawmakers are expected to introduce a bill to cut taxes during the week).
The ADP employment numbers that reflect private-sector positions added to the economy and which are sometimes viewed as a precursor to the nonfarm payrolls report, beat expectations today with forex market participants going long the dollar versus other currencies as the figures went public. Also pertaining to October’s jobs report, the unemployment rate is anticipated to remain at the 16-year low of 4.2%.
