Fundamental Preview: Today’s NFP might play an important role in the upcoming FOMC meeting

The market has been waiting patiently for the upcoming Nonfarm payrolls and unemployment rate data for the US. This week was full of surprises, as the economic data for the US showed a lot of improvements. The US ISM manufacturing PMI jumped to 57.3 from 56.4, and ADP Nonfarm employment change registered an impressive gain of 215K against the expectations of 173K. There is no denial about the fact that there are some recovery signs noted for the US. The economy has started to improve at a moderate pace, especially after the 2008 crisis.

The market is expecting a gain of 180K jobs in November, 24K less from the October. In October, there was an expectation of a decline to 125K, but the outcome was surprising, as a gain of 204K jobs was registered, as can be seen in the chart below. The previous reading was also revised up from 148K to 163K. So, if the reading for November does not miss the expectations, then it will be considered a good sign of recovery with back to back 180K+ readings.

On the other hand, the unemployment rate is expected to decline from 7.3% to 7.2%. The unemployment rate jumped 0.1% in October due to the partial US government shutdown. However, the market is expecting that tick to correct this time for November. There was a continuous decline in the unemployment rate for four months until October, as can be seen in the chart below. I think that the expectation of a 0.1% decline is certain considering the improvement in the labor market.

All the data released for the November points to strong recovery in the labor market. So, there are very little chances that the today’s outcome can be disappointing. Some economists believe that the jobs data may even register more gains in November. However, I do not feel that it is going to happen. A reading of around 165K-180K will be positive for the US dollar. Alternatively, a decline towards 150K may push the US dollar lower again, in my opinion.

It is important to note that the Fed’s interest rate decision is scheduled later in the month. There are a lot of speculations surrounding that the fed might consider reducing the asset purchases if the upcoming jobs data does not disappoint. So, a better reading will definitely ignite that theory, and might help the US dollar in the short term until the Fed interest rate decision. However, in my opinion, the Fed might decide to wait some more time before starting to taper.

The Michigan’s consumer sentiment is also scheduled to be released later in the day. There are expectations of a rise from 75.1 to 76.0. This is a preliminary release, so I do not think that it will cause much of a movement.

Technically, the EURUSD traded higher yesterday after the ECB decided to keep the interest rates unchanged at 0.25%. The market was expecting a dovish statement from the ECB President Mario Draghi. However, the statement was a little less dovish, which helped the EURUSD to gain some ground. The pair traded as high as 1.3673 during the NY session. The pair broke an important range resistance at around the 1.3610/20 level, and traded higher. The pair is trading inside an up-move channel, and getting close to test the upper channel resistance trend line. Let’s wait and see how the US dollar behaves after the NFP release, and whether the EURUSD can break higher or not.

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