US Nonfarm Payrolls Preview: What should US Dollar traders expect in January NFP report

  • The US Nonfarm Payrolls headline number is expected at 185K in January, below the previous 223K.

  • Average Hourly Earnings data declined to 4.6% in December and could trigger the next US Dollar move.

  • United States Unemployment Rate could rise a bit, to 3.6%, up from record-low numbers.

The US Bureau of Labor Statistics (BLS) will publish the US jobs report on Friday, February 3rd at 13.30 GMT. The release includes the Nonfarm Payrolls (NFP) number for January. The market estimates that 185K new jobs were created in the US economy last month. The US ADP Employment Report indicated a slowdown in private employment growth to 106K jobs added in January, unexpectedly falling short of the 178K forecasted and also lower than the 253K from December. This suggests that a worse-than-expected NFP outcome may be in store. Lower US employment figures could keep the US Dollar bulls on the sidelines.

The US Dollar has been meandering near 10-month lows against its major rivals, as markets read the latest comments by Federal Reserve (Fed) Chairman Jerome Powell as largely dovish.

Powell referred repeatedly during a news conference to the “disinflationary” process that now appeared to be underway, which markets view as the Fed could be turning a corner on its tightening cycle. While that justifies a weaker USD, the move may have gone too far. This should imply the beckoning of an upside correction in the US Dollar should the Nonfarm Payrolls headline number deliver a positive surprise.

Will the Nonfarm Payrolls report show a slower US job market? 

Friday’s United States (US) economic docket highlights the release of the closely-watched US monthly labor market data for January. And, the Nonfarm Payrolls expectations are that the economy added 185K jobs during the reported month, down from the 223K job additions in December. The Unemployment Rate is anticipated to tick slightly higher to 3.6% in January. 

Aside from the headline NFP number, investors will closely examine the Average Hourly Earnings, which could offer fresh insight into the possibility of any further rise in inflationary pressures. The US Average Hourly Earnings are expected to print 4.9% YoY in January, up from 4.6% reported in December while on a monthly basis, the wage growth is seen unchanged at 0.3% in the reported period.

Analysts at Citibank are more optimistic about the upcoming Nonfarm Payroll release: “We expect a sizable 305K increase in January, with some strength due to more technical factors but still-solid underlying job growth. We expect a somewhat stronger 0.4% increase in average hourly earnings in January compared to December, with roughly balanced risks around our above-consensus forecast. We expect the unemployment rate to remain unchanged at 3.5%, although with some elevated uncertainty around components of the household survey in January.”

Can US January Nonfarm Payrolls turn around EUR/USD price action?

The Nonfarm Payrolls report is scheduled for release at 13:30 GMT on Friday, February 3. As the dust settles over the dovish Federal Reserve and the European Central Bank monetary policy decisions, the EUR/USD pair has entered a phase of downside consolidation near the 1.0900 threshold. Weaker US employment details could trigger a fresh leg down in the USD and provide an additional boost to the main currency pair.

In contrast, any positive surprise could offer legs to the ongoing USD recovery but any upside could be limited amid increased expectations that the US central bank will pause its rate-hiking cycle. This is what revives the US Dollar bears and suggests that the path of least resistance for the EUR/USD pair is to the upside. 

Dhwani Mehta, Analyst at FXStreet, offers a brief technical overview and outlines important technical levels to trade the EUR/USD pair: “With a potential bullish crossover on the daily chart, represented by the bullish 100-Daily Moving Average (DMA) piercing the flattish 200DMA from below, the upside appears more compelling for the EUR/USD pair. The 14-day Relative Strength Index (RSI) is holding comfortably above the midline, keeping buyers hopeful. The pair needs to recapture the 1.0950 psychological barrier to resume the uptrend toward the 1.1000 round figure. 

“On the downside, the EUR/USD pair could extend the correction toward the bullish 21DMA at 1.0837 should the previous day’s low fail to offer support. Further south, the January 31 low at 1.0802 will come to the rescue of the Euro buyers, ” Dhwani adds further.

Nonfarm Payrolls related content

About the Nonfarm Payrolls report

The US Bureau of Labor Statistics’ Nonfarm Payrolls report lists all new job positions created in non-agricultural industries over the previous month.

The monthly payrolls report has a strong association to the US Federal Reserve monetary policy, which can cause financial markets to fluctuate a lot. The NFP number is made public along with updates to data from prior months, which are likewise watched closely by currency and stock market traders.

Better-than-expected readings are typically seen as favorable (or bullish) for the US Dollar, while worse-than-expected readings are seen as negative (or bearish) for the USD. The Unemployment Rate and the Average Hourly Earnings are frequently as important as the headline NFP figure.

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