The upcoming NFP release comes only two days after the FOMC meeting. While the U.S. central bank did announce that it will begin the process of tapering its balance sheet, it sounded far less hawkish than the market was expecting. Fed Chair Powell made it clear that the end of tapering by mid next year does not guarantee that rate hikes will follow immediately. The Fed sees inflationary pressures as temporary and emphasized that the job market hasn´t yet reached its full potential.
It’s that last bit of information that will make today´s employment figures particularly important. Inflation fears continue to linger, but now it is clear that the central bank is more focused on the recovery of the job market.
Before we consider the expectations for the impending jobs data release, let’s look at some leading indicators from this week. While these should not be used to predict the NFP number, they are useful and closely watched by traders.
Overall, those are solid numbers and indicate that the NFP figure could beat expectations today.
The previous two NFPs were disappointing, but ADP and ISM figures from this week are hinting at a solid print today. The NFP number is likely to exceed expectations slightly, with a print above 500k possible. Meanwhile, the unemployment rate is likely to arrive in line with expectations at 4.7%.
A better-than-expected NFP print would help the U.S. Dollar regain some momentum, as the FOMC meeting did not prove to be the bullish catalyst Dollar bulls were hoping for. In FX, the main currency pair to watch would be GBP/USD. The Bank of England surprised traders today by not hiking rates at all and the pressure on the Pound is likely to increase further as traders have been aggressively pricing in rate hikes in 2022.
GBP/USD has already declined quite notably, but the Daily RSI suggests there is more room to the downside, with 1.3412 the next immediate bear target. A break below this level would pave the way for a continuation of the correction towards 1.3170 (38.2% Fibonacci of the April 2020-May 2021 rally), followed by the psychological support level at 1.30.
Meanwhile, a disappointing figure (below 250k) could lead to a temporary pause in the Dollar rally. Risk appetite remains high, and traders might want to keep an eye on AUD/USD. The currency pair should find strong support at 0.7315 and a weak NFP print could give it a boost to retest the recent high at 0.7555.
Meanwhile, stock traders don´t appear to be overly worried about inflation and rising rates. Weak employment data would only add to that bullish sentiment and pave the way for new record highs in the U.S. stock market, despite technical indicators already signaling overbought conditions. The USTECH index remains a popular choice in this current environment.
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The stage appears set for consolidation in the FX market, with traders shifting focus to record-breaking stocks and cryptos