Here we are again. It’s the beginning of November and trader focus will once again be placed on the US non-farm payrolls report. Although sentiment regarding the US economy is still relatively bearish, the US labor market report could be the silver lining this month. Here’s why.
Statistically speaking, the ADP private employer report holds a close and positive correlation with the US employment survey. Simply, when ADP shows positive labor market growth so does US non-farm payrolls. This correlation has been as high as 94%, making the ADP release an indicator of things to come in NFP. So, then it’s no surprise that expectations are bullish when it comes to upcoming labor market report. According to the New Jersey based private report, October saw an addition of 158,000 employees to corporate payrolls – the most in eight months. The actual headline figure represents an increase of 21% over expectations and hints at a subsequent increase in the national labor market figure.
Additionally supportive of a bullish NFP figure is the fact that US jobless claims have slumped for the most part. Aside from the one off surge in claims two weeks ago, October has seen an average of approximately 365,000 claims a week. The figure corresponds with the current rolling 4-week average of 367,250. The last time figures were this low was back in the summer, when payrolls maintained an average of 127,000 – above current expectations of 123,000. So, if the reigning statistical sentiment holds, payrolls will actually remain in the six figure area and rise above expectations.
So, what’s the best investment? The result of a higher than expected US labor figure will help to prop up currency pairs like the USDJPY. The USDJPY has recently been bolstered on rising global economic prospects, accompanied by a decline in safe haven sentiment. And, a positive NFP report won’t be treated any differently.
Technically speaking, USDJPY has found support near the 79.34 figure, which is being reinforced by support barriers at the psychological figure of 79. The technical barrier should open scope for a bounce towards 80.68 50% fib resistance (84.17-77.12 bear wave) in the short term, with a break above opening scope for a climb to 81.50. Any downside should be limited towards the previously mentioned round figure of 79.
Given the recent upticks in employment through other external reports, expectations are looking for a positive gain in the US labor market for the month of October. This is the last report before the US Presidential Elections, and one that could help the near term fortunes of the greenback.