Nonfarm Payrolls: Expect the Unexpected

Nonfarm Payrolls: Expect the Unexpected

5 May 2016, 20:12
Roberto Jacobs

Nonfarm Payrolls: Expect the Unexpected

The US economy is expected to have added roughly 200,000 new jobs in April, way too optimistic, given these last few day's macroeconomic releases.

Adding to a quite disappointing US growth in the first quarter, as the advanced GDP reading came in a 0.5%, was a relatively soft ADP survey, showing that the private sector added just 156,000 new jobs in April, below the 200K expected. The backdrop in GDP, was largely attributed to softening consumer spending.

Also, US productivity fell again in Q1 after declining by the end of 2015, with the hourly output per worker down by a 1.% annual rate. Late April, the Commerce Department reported that personal consumption expenditures (PCE) price index, excluding the volatile food and energy components, edged up 0.1% in March after an upwardly revised 0.2% increase in February. Personal income rose modestly but spending fell below expected, suggesting consumption will remain subdued, as salaries are not growing enough. 

Read: Nonfarm Payrolls macro scan

A positive note came from the ISM non-manufacturing PMI employment sub-component, up in April 2.7 percentage points to 53, from the March reading of 50.3 percent and indicates growth for the second consecutive month.

Overall, the US economy is clearly in trouble, and even if the April employment report beats expectations, speculative interest will be watching how wages performed before rushing into buying the greenback. If wages remain low there's no chance of up ticking inflatio. This will take a June rate hike out of the table and therefore send the dollar back south.

The unemployment rate is expected to remain steady at 5.0% while average hourly earnings are expected to have advanced 0.3% monthly basis. A reading above 0.5%, alongside with a steady unemployment rate and in-line with expected jobs creation, could boost the latest recovery of the greenback, particularly against the EUR and commodity related currencies. 

A conflicting release on the other hand will see the market spiking up and down to initial headlines to finally go accordingly to salaries' results.

EUR/USD levels to watch


The EUR/USD pair erased all of its weekly gains ahead of the NFP release and stands a few pips above the 1.1400 level, losing its upward potential according to the daily chart, as the pair shed over 200 pips pretty much straight after topping at 1.1615 mid-week. The pair is quite close to a major support in the 1.1370/80 region and a break below can see the pair down towards the 1.1300 price zone, en route to 1.1260. The report should be an extreme positive surprise in all of its sub-components to see the pair reaching this last.

The 1.1460 price zone has become once again the immediate resistance, followed by the 1.1530 level. Should the advance extend beyond this one, the pair is then expected to continue beyond the mentioned 1.1615 high and advance towards the 1.1710 level next week.

USD/JPY levels to watch


The USD/JPY pair will probably see large movements after Payrolls, particularly after Japanese markets will resume activity after a three-day holiday this Friday and investors will be eagerly ready to play with it.

Dollar's demand has helped the pair bounce from a multi-year low of 105.54, but the technical stance is still bearish in the daily chart, as the Momentum indicator has resumed its decline within negative territory. The price is far below its 100 and 200 SMAs and it seems unlikely that even with a strong Nonfarm Payroll report the pair can recover up to the shortest, currently at 113.20.

Anyway, the main support is now 106.60, followed by 106.00, and the mentioned low at 105.54. A decline down to this last one is possible on a poor employment report. A steady advance above the 107.60/80 region, where the pair has several daily lows from late March/early April, could see the recovery extending towards the 109.00 price zone on a positive surprise.


Share it with friends: