The July NFP figure is being released into what seems like a critical inflection point. Following the FOMC meeting on July 29 where a rare 9-3 split on the Fed's verdict meant we are now pricing some 63-67% probability on a September rate hike. The release this week will therefore confirm market expectation or trigger a sharp repricing across markets.
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The Setup: What is Expected
Friday August 7 8:30 AM ET (12:30 PM GMT) sees the release of the July Employment Situation report from the Bureau of Labor Statistics. Market expects a rebound from the much weaker than expected 57,000 jobs printed last month.
Metric Prior (June) Forecast (July) Range
Nonfarm Payrolls 57,000 80,000-88,000 40,000-157,000
Unemployment Rate 4.2% 4.2% 4.1%-4.3%
Avg Hourly Earnings (YoY) 3.5% 3.5% 3.3%-3.5%
However, prediction markets are suggesting something else. The price of Kalshi traders gives us only a 47% chance of payrolls exceeding 80,000, with central expectation lying in the 70,000-80,000 range. The chance of below 60,000 for NFP now prices at about one third.
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Technical Setup: Seven Weeks Coil for Gold
The yellow metal XAU/USD is coiled like a spring, consolidating for seven weeks in a steadily tightening range-this awaits a catalyst.
Key Gold levels:
Level Value Significance
Buy-Side Liquidity (BSL) $4,166-$4,188 Breakout Trigger zone
Point of Control (POC) $4,063 Fair value anchor
Sell-Side Liquidity (SSL) $3,986-$3,944 Breakdown trigger zone
Supply Resistance $4,205 Premium supply zone
The 0.618 Fibonacci golden zone lies at $4,120. Expect sellers to hold sway below $3,900,and buyers to defend above $4,200.
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DXY Technical Context
The dollar Index (DXY) now finds itself on an inflection point, trading more than 2% lower from its recent yearly high.
Key DXY levels:
Type Value
Key support 99.30-100.30
Critical support 99.49 (38.2% Fib retracement)
Next downside levels 98.60-98.00
Resistance 101.80-102.00
A weekly close below 99.30 will trigger technical confirmation of a top and could be the catalyst for a move down to June breakout origins around 98.60-98.00.
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Three Scenarios
Goldilocks (75K-100K, UE 4.2%)
The ideal scenario for risk assets. This scenario will show economic moderation but no signs of collapsing demand, which ought to lessen pressure on the Fed to hike at least in September.
Gold: Likely to remain tight between BSL and SSL.
DXY: Might just weaken slightly, but no major correction seems to be in the cards.
GBP/USD: Could push higher toward the 1.3480 resistance level.
Market will continue to await the next economic driver.
Beat (100K+, wages strong)
A positive jobs number, combined with growing wage pressures would further increase the probability of a hawkish fed response. September hiking odds are likely to surge above 70% as a result of this scenario.
Gold: Would likely trend lower, targeting SSL ($3,986-$3,944) and potentially further liquidity pool south of that.
DXY: Likely to surge sharply toward 101.80-102.00.
Fed Odds: September hike probability likely surges above 70%.
If levels below $3,944 break convincingly, a sharper downside move is probable.
Miss (Below 60K, unemployment ticks 4.3%+)
Most surprising given current market expectations. This result could create havoc among currency traders and could send prices higher for gold and lower for dollars.
Gold: likely to rally hard against the BSL ($4,166-$4,188) and supply at $4,205.
DXY: May be forced to accelerate the fall down towards 98.60-98.00.
Risk assets: Could see an initial rally on the assumption of dovish Fed action, followed by falling prices if recession fears take over.
A decisive breakthrough above $4,205 signals continuation toward higher levels.
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Rules for NFP Trading by Pros:
What is actually being measured by NFP. The BLS's monthly Employment Situation Report actually contains the net changes in non-agricultural payroll employment as determined by a survey conducted on roughly 144,000 enterprises and government agencies .
Why does this result move markets: It is the most important measure of the maximum employment aspect of the Fed’s dual mandate. Markets react quickly because virtually all asset classes are highly Sensitive to monetary policy and potential changes to interest rates.
The four component rule. Pros have four essential lines, not just one headline:
1. Headline number - the headline number is probably the single most mentioned figure
2. Unemployment rate - this rate is drawn from a separate survey, called the Household Survey
3. Average hourly wages - this figures indicates inflation within the NFP result
4. Revision figure - a substantial adjustment to the previous monthly jobs print could dramatically alter the story in seconds.
Execution rules. The following rules are common on trading desks:
Only limit orders. Never market orders on NFP because the bid-ask spread can inflate 5-10 fold, and volatility can create slippage problems for participants.
Don't trade for 60 seconds after release. A quick run up on the release can be followed by a drastic sell-off, hence better to allow the price to stabilise.
Trade on the follow-through at 30 minutes post-release. A better opportunity can present itself at that point with clearer charting setup and better risk-reward ratios.
Reduce by half the position size of that of a normal daytrading session. Due to the inherent volatility of NFP events, position sizing should reflect that, thus reducing it by about 2-3 times is prudent.
Pitfalls to avoid:
Relying solely on the headline jobs number. Wages, unemployment and revision figures need to be taken into account, otherwise traders risk making incorrect trading decisions.
Chasing the spike. The initial 60 second move on the NFP release often runs up or down due to algorithmic trading, and this trend is rarely sustainable.
Overlooking the revision figure. A strong headline might look good on paper, but if there has been a 50,000 downswing in the last jobs data, then the result is softer than expected.
Expecting the risk-reward ratio of a normal day when trading NFP volatility. The risk is increased by 2-3x on an NFP day and traders must adjust their position sizes and stop-loss levels accordingly.
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