NFP Friday is here

The dollar strengthened against its major counterparts after robust employment data broadcasted the resilience of the US labour market, ahead of today’s crucial NFP report. Moreover, gold saw its impressive rally snap and US stock markets slid lower, both falling victims to the dollar’s strength. Yesterday, the initial jobless claims dropped more than expected as only 204k filed for unemployment benefits in the past week. Furthermore, the ADP employment report recorded an upside surprise, as the US economy added 235k new jobs in the month of December higher than the 150k expectation and job creation nearly doubled compared to the previous figure of 127k of the previous month. The results once again validated the view that the US labour market remains resilient and healthy, despite growing fears for an impending recession. The favorable results give more room and confidence to the Fed to continue on with its restrictive monetary policy efforts at taming inflation, obstructing it from becoming deeply entrenched. Today, the spotlight is expected to fall on the release of the Non-Farm Payrolls, unemployment rate and average earnings will provide a status update on the health of the US labour market. More specifically the NFP figure is according to estimates expected to ease to 200k when compared to the 265k of the previous month, the unemployment rate is expected to stay still at 3.7% and average earnings are also to slow to 5% versus the 5.1% rate of the past month. Overall, economists associate the estimates with tight labour markets. Later today, Atlanta Fed President Bostic, Richmond Fed President Barkin and Kansas City Fed President George are scheduled to deliver speeches. The market anticipates that the FOMC members could provide clarifications and further hints in regards to the central bank’s future plans. Yesterday, St. Louis Fed President Bullard stated, “the probability of a soft landing has increased” since “the labour market has not weakened the way many predicted”. He also believes that the Fed should “fight inflation now, get it under control, get it back to 2% while you’ve got the resilient labor market.” Shifting our attention towards Europe, the bloc is set to announce its preliminary year on year HICP rate for the month of December and Euro traders will be looking closely at the results of the headline release. According to estimates the year-on-year rate is expected to ease to the 9.7% , down from 10.1% reported last month. Should the actual figure meet expectations we may see the Euro weaken as the result would imply that inflation has cooled in the month of December, yet it remains more than four times higher than the ECB’s 2% target. Earlier this week, both Germany’s and France’s HICP indicated a faster than expected cooling of inflation. Overall, the results should be considered a step towards the right direction however the central bank is by no means done with its tightening efforts. Drawing the comments made earlier this week by ECB policy maker Nagel, the bank is expected to march on with more rate hikes in the coming meetings to contain runaway inflation. Similar remarks were made yesterday by ECB policymaker Villeroy.

USDIndex rose after favorable employment data. We hold a bullish outlook ahead of today’s NFP. Should the bulls reign, we may see the index break the 105.30 (R1) and aim for the 106.00 (R2) level. Should the bears take over, we may see the break below the 104.60 (S1) support level and head to 103.70 (S2) support base.

EUR/USD slipped lower yesterday after the dollar strengthened. We hold a bearish outlook bias. Should the bears reign, we may see the pair break the 1.0460 (S1) line and aim for the 1.0380 (S2) level. Should the bulls take over, we may see the pair rise and break 1.0550 (R1) line and aim for the 1.0620 (R2) level.

Other highlights for the day:

We also highlight Germany’s Industrial Orders for November, UK’s Halifax House Prices for December, Canada’s employment change and unemployment rate for December and from the US the ISM services PMI for December alongside the Factory Orders for the month of November.   

USDIndex H4 Chart

Support: 104.60 (S1), 103.70 (S2), 103.10 (S3)

Resistance: 105.30 (R1), 106.00 (R2), 108.80 (R3)

EUR/USD H4 Chart

Support: 1.0460 (S1), 1.0380 (S2), 1.0300 (S3)

Resistance 1.0550 (R1), 1.0620 (R2), 1.0700 (R3)

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