Trading the Non-Farm Payrolls report – GBP/USD and Gold

The US January non‐farm payrolls report due for release tomorrow is likely to show the US economy added 192K jobs in January. The December figure may see significant revision mostly on the lower side as markets viewed the higher number (292K) with skepticism due to seasonal variations.

We also get the unemployment rate, the labour participation rate, average hourly earnings and hours worked.

USD on a weaker footing

The US dollar is on a weak footing, heading into the non‐farm payrolls figure, courtesy of Fed’s Dudley’s dovish comments – US could be hurt by significant downturn in the market and/or global economy. Till yesterday Fed officials maintained silence over the risk‐off, but Dudley’s comments signaled markets that the Fed may delay rate hike if the economic slowdown and/or market turmoil worsens from here.

The CME data shows markets believe the tightening is over for now. The 25 basis point hike in December is “one and done” deal.

Watch: Valeria Bednarik, Dale Pinkert and Yohay Elam in the NFP live coverage

Overall picture says, a weaker‐than‐expected NFP figure could turn out to be a straw that broke the USD bulls’ back!

GBP/USD – Doors open for gains after slightly hawkish BOE

The BOE came out slightly hawkish today. Carney’s comments ‐ all BOE members see rate hike as the next likely move & committee did not discuss negative rates or rate cut – caught bears by surprise. This is evident from the sharp recovery in the pair from 1.4529 to 1.4668 levels. The spot has trimmed gains, but stays around 1.46 levels.

Hourly Chart

• A weaker‐than‐expected payrolls figure coupled with a drop in the earnings could easily push the pair to 1.4786‐1.4790 (38.2% of 1.5930‐1.4079 + 61.8% of 1.5230‐1.4079).

• A daily close above 1.4790‐1.48 open doors for 1.49 levels.

• On the other hand, a stronger‐than‐expected figure could send sterling lower to rising trend line support (red line) currently seen at 1.4432.

• A strong figure may result in a drop in Sterling, but the odds of a rebound (courtesy of slightly hawkish BOE) stay high as long as the pair stays above 1.4432

Gold ‐ Appears stronger than ever

The yellow metal is trading at a three‐month high of USD 1155/Oz levels. The metal looks stronger‐thanever on account of –

• Rise in safe haven demand due to risk aversion

• Fresh prospects of currency war

• USD selling

Moreover, a weaker‐than‐expected could only lead to a possible delay in Fed rate hike and that could add to bid tone around Gold as –

• Falling rate hike bets are positive for Gold

• Delay in rate hike could force other central banks to push rates further into negative territory; something which is supportive for Gold as well

Meanwhile, a stronger‐than‐expected labor data could trigger a minor correction in the metal.

Weekly Chart

• Prices are trading above weekly 50‐MA (blue line) for the first time since late October.

• A weak data could see metal close above weekly 50‐MA for the first time in a year; marking a major trend reversal in the metal. That would also mean a bullish break from the falling channel formation.

• Key resistance level is seen at USD 1180‐1200/Oz levels, while major support is seen at USD 1113.15 and 1100 levels.