Employment data has been mixed this week for the US, yet skewed to the upside overall. Nonfarm payrolls is forecast to rise by 750k jobs in August, which is down from July’s 943k but a strong forecast none the less. Unemployment is expected to fall to 5.2%, which would be its lowest rate since March 2020 – just as the fallout from the pandemic was really heating up.
Dollar bulls need a strong Nonfarm report
The ideal scenario for dollar bulls is to see NFP print over 900k jobs and the unemployment rate rise above 5.3%. Should it come in around expectations then the bullish reaction may not be as strong. And there are other employment reports that the Fed will also likely consider.
JOLTS job openings rose to a new record high of 10.07 million, up from 9.48 million. The employment index from the ISM manufacturing PMI report contracted at its fastest rate since November and for its second month over the past three. The ADP employment report saw 374k jobs added in August, up from 330k in July, yet this was significantly below the 640k expected.
Yet initial and continual jobless claims fell to a new post-pandemic low, which helped to bolster risk appetite yesterday. Overall employment data is a net-positive so a strong employment report today (higher job growth and lower unemployment) could bring forward expectations for the Fed to tighten policy.
Market ahead of NFP
The US dollar is on the back foot heading into today’s employment report. The dollar index (USX) touched a new 1-monht low overnight although remains just above 92.0. And this allows EUR/USD to extend its lead and now trades just -23 pips below 1.1900. Although out of the USD majors, it is commodity pairs which look the most appealing should the dollar weaken further. Both the Australian dollar and New Zealand dollar have rallied on short covering this week and trade just off of their highs, with potential bull flags forming on the hourly chart. Out of the two we’d prefer NZD/USD for potential longs as it has found support at 0.7100. USD/CAD also looks of interest as it printed a bearish outside day yesterday and closed beneath 1.2568 support, so the bias remains bearish beneath 1.2640.
China’s growth tipped to slow down in Q2
Earlier this week we saw China’s manufacturing PMI contract. Today we learned that the services PMI also contracted which points towards a broad weakness for growth as we approach the end of the year. Were it not for today’s Nonfarm payroll report then we’d have expected more of a market reaction. AUD hardly moved, and it remains supported by the weaker US dollar and short covering following Australia’s ‘not weak as expected’ GDP report. NZD also sits nears its highs and remains the strongest currency this week as risk-appetite remains elevated.
Japan’s PM steps down, Nikkei steps up!
After just one year on office after taking over from Shinzo Abe, the current PM of Japan has decided to step down and not run for office later this month. His support has fallen to just 30% whilst Japan continues to struggle with COVID following the controversial decision to go ahead with the Olympics.
Traders were quick to take notice. Share markets in Japan were the strongest of the session with TOPIX large caps leading the way higher by 1.7%. The TOPC 500 rise 1.6% and the Nikkei 225 rallied 0.8% and broke a key resistance level.