NFP Preview: July 2021 Special
The US central bank successfully managed to soothe markets and push back against speculations that it might unwind its ultra-loose monetary policy earlier than expected. Equity markets extended gains in the past few weeks, and while investors in Asia and Europe are turning slightly more cautious amid a surge in new COVID-19 cases, Wall Street continues to hit fresh record highs on an almost daily basis.
The next meeting of the Federal Reserve is scheduled for the end of this month, and it could very well be today´s US jobs data that set the tone until then.
This Week's Data:
Before we look at the expectations for the impending jobs data release, let’s look at some leading indicators from this week. While these should not be used to predict the NFP number, they are useful and closely watched by traders.
- ISM Manufacturing Employment came in at 49.9 vs 50.9 previously
- ADP Nonfarm Employment Change came in at 692k vs 600k expected
- Initial Jobless Claims came in at 364k vs 390k expected
Overall, those figures were either slightly below or in line with expectations, and didn´t trigger a major market reaction.
Forecasts:
- Nonfarm Payrolls: The market is expecting a 700,000 print. The previous NFP figure came in at 559,000 – below expectations
- Unemployment rate: The unemployment rate is expected to decline from 5.8% to 5.7%
- Average Hourly Earnings: Investors are anticipating a 0.4% month-on-month and 3.7% year-on-year increase
Market Impact:
Taking the recent data into consideration, it seems likely that the NFP figure will slightly miss expectations. This would give equity markets a boost, as investors would start to unwind bets that the Federal Reserve will show even more of its hawkish side at the upcoming meeting. In the current market environment, bad news can indeed be good news – and that’s the case with US employment figures. It’s the sluggish recovery of the labor market that has kept the taper talks limited.
A disappointing NFP print would also weigh on the US Dollar, which has seen a recovery rally in the past two weeks. A key currency pair to watch is EUR/USD, which is currently testing an important support level at 1.1845. Should weak employment figures bring the Greenback under renewed pressure, the Euro could bounce from here and rally back towards the 200 DMA.
USD/CAD is worth keeping an eye on too. Rising oil prices are keeping the Canadian Dollar bid, but the currency pair saw bit of a short squeeze amid crowded positioning. However, a weak NFP print – along with the surge in oil prices – should be sufficient to trigger a reversal of the recent recovery rally and push USD/CAD back towards the 1.20 support level.
What if there is a surprise and the NFP figure exceeds expectations? We would then likely see the next leg lower in XAU/USD, with $1677 the next notable support level.
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