Fundamental Preview: Analyzing Nonfarm Payrolls and possible impact of the US shutdown on the outcome

One of the most important events for the week is scheduled later in the day. At 13.30 GMT US Nonfarm payrolls and unemployment data will be released. The market is expecting a drop in the number of people employed in the last month. Nonfarm payrolls are expected to register a decline of 23K and the unemployment rate is expected to rise from 7.2% to 7.3%.

Last three outcomes of Nonfarm payrolls have been mixed as the jobs created dropped sharply in July, climbed to 193K in August and then dropped again in September to 148K as seen in the chart below. In October, the market is again expecting a drop from 148K to 125K due to the US shutdown, which happened in October. There was a partial US shutdown in October, which is likely to affect the Nonfarm payrolls this time around.

Unemployment rate on the hand has been heading south from the past couple of months as can be seen in the chart below. Since June, the US unemployment rate fell from 7.6% to 7.2% in September. This time the market is expecting a rise of 0.1% in the unemployment rate due to the partial US shutdown in October.

However, I feel that the outcome may be more dramatic. I think the unemployment rate may rise to around 7.4% or 7.6% and Nonfarm payrolls may fall close to 110K. Both the data may play a key role for the upcoming FOMC policies. The speed of recovery in the labor market is still a concern for the fed. Moreover, it is also worth noting that most of the outcome has been priced in as the market knows that the impact of the shutdown may be severe in the short term. So, we need to be very careful while trading this particular risk event today.

Looking into the technical details, one of the most volatile pairs EURUSD dropped close to 200 pips yesterday after the ECB announced a rate cut from 0.5% to 0.25%. EURUSD fell to 1.3295 and then recovered more than 60% of the lost ground later in the NY session. EURUSD traded close to 1.3440 as shown in the chart below.
EURUSD broke an important up-move trend line and traded lower. However, the pair bounced sharply from the 50% Fibonacci level after closing the uncovered gap at around 1.3295. The pair may now find resistance around the broken trend line and previous support at around 1.3440/50/60.

The pair may find some support if the data misses the mark badly today. On the other hand, if the NFP numbers come close to the expectations, then the pair may continue to head south and may retest the yesterday’s low again.
Similarly, other major US dollar pairs like GBPUSD, AUDUSD, NZDUSD and USDJPY may behave in the same manner. A little poor outcome may be treated as good because the market is expecting a major decline in the jobs report today.

So, trade carefully and try not to catch the falling knife.

Get my Daily Market forecast with trade opportunities HERE: Vladimir’s Markets Forecast

Happy Weekend friends.

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