As financial markets await December US non-farm payroll data, remains the strongest major currency for the week. 10-year treasury yield continues its attempt to breach break 4% psychological level, as its near-term recovery is still intact. Concurrently, NASDAQ leads pullback in the stock markets, reflecting cautious investor sentiment.
The current market mood suggests recalibration of expectations regarding Fed’s policy loosening path. Traders are increasingly skeptical about Fed starting rate cuts as early as March, with the likelihood now estimated around 65% according to Fed funds futures. A robust set of NFP numbers could further solidify this sentiment shift, potentially boosting Dollar and treasury yields while exerting pressure on stocks.
Markets expect NFP to show 168k job growth in December. Unemployment rate is expected to tick up from 3.7% to 3.8%. Average hourly earnings are expected to grow 0.3% mom.
Recent released job market data suggest the possibility of an upside surprise in the NFP report. ADP private employment report showed 164k new jobs in the same month, exceeding expectations and showing an increase from the previous month’s 101k. ISM Manufacturing PMI’s employment component also improved, rising to 48.1 from 45.8, though it remains in contraction territory. Furthermore, 4-week moving average of initial unemployment claims decreased to 208k, down from previous month’s 221k.
Market response to NFP data could particularly impact 10-year treasury yield. Technically, a short-term bottom appears to be in place at 3.785 with the current recovery, and D MACD crossed above signal line. Firm break above 4% level could provide momentum for TNX to target the 55 D EMA, currently at 4.212. While a break through 38.2% retracement of 4.997 to 3.785 at 4.247 seems unlikely at present, even a moderate rebound in TNX should lend near-term support to Dollar, especially against Yen.
