The first full week of August is upon us, with the spotlight firmly on the US labor market.
Following the Federal Reserve's surprisingly hawkish tone after its July 29 policy meeting, attention turns from central bank policy decisions to economic data. And it doesn’t get any bigger than this month’s Nonfarm Payrolls report this Friday.
Here's the reason why.
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The Jobs Data You Need to Know
At 12:30 GMT on Friday, August 7, the US Bureau of Labor Statistics will release its July Employment Situation report. With job growth flat in June, markets are anticipating a sharp pick-up in activity:
Metric Previous (June) Forecast (July) Nonfarm Payrolls 57,000 88,000 - 91,000 Unemployment rate 4.2% 4.3%
The expected consensus range for Nonfarm Payrolls was between 50,000 to 140,000, with the median expectation hovering at a disappointing 88,000.
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What This Means for the Dollar
The US monthly Nonfarm Payrolls is arguably the most important economic figure for foreign exchange traders – it’s widely regarded as an indicator of US economic health and directly watched by policymakers in Washington DC.
The general rules of engagement are simple:
A strong number (above expectation): Bullish signal for the USD
A weak number (below expectation): Bearish signal for the USD
More importantly, the market does not assess data in isolation. Everything that forms part of the BLS report, from last month's revisions to previous payroll readings to the unemployment rate, will be scrutinized by traders looking for an overarching picture of US labor market trends.
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Why this week's report matters now
The timing couldn't be better. The FOMC decision on July 29 ended with a contentious 9-3 vote, where three Fed governors called for an immediate rate hike and Fed Chairman Kevin Warsh stated he would not rule out a hike in September.
This week’s jobs numbers will serve as the critical data that will either justify or dismiss such an interpretation by Fed policy setters.
A solid number (90k+) would strengthen the Fed’s hawkish lean and could push the Dollar Index (DXY) to push the 102 level. Furthermore, it would enhance the odds for a September hike from current 64 percent odds according to Fed funds futures.
A disappointing outcome (under 50k) would fan expectations of more Fed easing and likely lead to further US dollar selling pressure as markets conclude the Fed’s current cycle of tightening is having too much of an impact on the economy.
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The Week Leading Up to Nonfarms
Aside from Friday's Nonfarm Payrolls data, here is a snapshot of the rest of the week’s key economic events:
Day Event Monday ISM Manufacturing PMI Wednesday ADP Employment report, JOLTS Job Openings Thursday ISM Services PMI Friday Nonfarm Payrolls
Each will be giving you signals about the health of the labor markets leading into the main event on Friday.
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What This Means for You
This is going to be the week that dictates how the dollar trades for the remainder of August.
If you are already bullish USD: Keep an eye on the 99.30 support level. A positive jobs number can see DXY test the 102 resistance level. If you are already bearish USD: look to see if weak numbers will accelerate USD selling past 98.95.
The relatively light UK calendar meansGBP/USD and EUR/USD will be highly sensitive to the US dollar’s moves generated this week and the impact from the Nonfarm Payrolls will dictate its direction. Disciplined trading and awareness of key levels will be essential as the week unfolds – and especially on Friday.
