US Nonfarm Payrolls Forecast: January’s Job Data Impact on Market Dynamics and the USD

The imminent release of the January US Nonfarm Payrolls (NFP) report has set the stage for heightened market anticipation. As the United States Bureau of Labor Statistics (BLS) prepares to unveil critical labor market insights at 13:30 GMT on Friday, traders are keenly observing the potential ramifications for the US Dollar (USD) and the Federal Reserve‘s policy outlook.

Highlights:

• NFP Impact: Jobs report (NFP) to influence US Dollar (USD) and Federal Reserve’s (Fed) policy direction.
• Market Shift: Moderate job growth expected, but strong data could strengthen USD and impact Fed rate cut possibilities.
• EUR/USD Volatility: NFP expected to cause high volatility in the EUR/USD currency pair, with technical indicators suggesting caution for buyers.

Nonfarm Payrolls Forecast Insights:

• Moderation Expected in January’s Job Growth: Expectations point to a moderate increase of 180,000 jobs, following December’s robust addition of 216,000. This forecast establishes a backdrop for potential market shifts based on the reported data.

• Unemployment Rate and Earnings Trends: Analysts are eyeing a marginal uptick in the Unemployment Rate from December’s 3.7% to 3.8%. Additionally, the Average Hourly Earnings, a bellwether for wage inflation, is projected to maintain a 4.1% increase, mirroring December’s pace.

• Fed’s Stance and Interest Rate Expectations: The NFP report holds pivotal significance in shaping expectations regarding the Federal Reserve’s (Fed) potential interest rate moves. The recent nuanced statement from the Fed, leaning slightly hawkish, adds complexity to interpreting the NFP data’s impact on future policy decisions.

Market Reaction to January’s Nonfarm Payrolls

• Market dynamics reflect a decreased probability of a March Fed rate cut, now at 35%, down from the initial 50% at the beginning of the week. However, a 90% chance of a rate cut in May underscores ongoing uncertainty in the market regarding the Fed’s future policy decisions.

• TD Securities (TDS) analysts project a robust increase in payrolls at 230,000 for January, emphasizing the customary strength observed in January reports. The annual benchmark and seasonal factor updates are anticipated to introduce additional nuances to the data.

• Automatic Data Processing (ADP) data reveals a rise of 107,000 in private sector employment for January, falling below the expected 145,000 increase. This discrepancy prompts questions about the overall health of the labor market.

EUR/USD Dynamics

• The eagerly awaited Nonfarm Payrolls (NFP), a key US labor market indicator, is set to be released at 13:30 GMT. In December, EUR/USD saw a notable 1% gain, reaching 1.1140, its highest level since July, before undergoing a correction in early 2024. Traders are bracing for heightened volatility driven by the impending US jobs report, expected to influence the directional movement of the main currency pair.

• A positive NFP result, surpassing 200,000 jobs and accompanied by an unexpected rise in wage inflation, could strengthen the US Dollar and weigh on EUR/USD. Conversely, disappointing data reinforcing expectations of a March Fed rate cut might briefly lead to USD selling pressure, considering the recent Fed stance.

• technical outlook: caution is advised for buyers as the 14-day Relative Strength Index (RSI) remains below 50. Sustaining the upside requires a daily close above the 21-day SMA at 1.0891, with the 50-day SMA at 1.0920 posing a significant resistance. A retracement could test the 200-day SMA, now a support, with the 100-day SMA serving as a potential last defense for buyers.

Conclusion

As the financial markets brace for January’s Nonfarm Payrolls data, the outcome is poised to reverberate through various sectors. The intricate interplay between labor market indicators, the Federal Reserve’s stance, and market expectations will likely determine the USD’s trajectory. Traders and investors are advised to exercise caution and stay attuned to the nuanced dynamics that may unfold in the aftermath of this highly-anticipated release.

Read more: Market Week Ahead: FOMC, BoE, and NFP Highlight This Week’s Economic Calendar