Nonfarm Payrolls Preview: so what?

The dollar heads into July Nonfarm Payrolls data with a weak tone, compliments to dismal Q2 GDP figures and an on-hold FED. The last two releases were quite volatile, with the US adding 38,000 new jobs in May, later revised down to 11,000 and 287,000 new jobs in June, still unrevised. Anyway, and dismissing May reading  as an exception, employment has presented quite a healthy positive trend for over two years now. The unemployment rate, rose from 4.7% to 4.9% last June, nothing actually worrisome. In fact, during latest FED's meeting, the  Central Bank acknowledged that the employment sector is growing stronger. The main concern of the FED is still low inflation.

That's why, no matter how good the report comes out, there are little chances that it will be enough to change the ongoing negative tone of the American currency. Anyway, the release will have some effect  over the FX board particularly if the reading is a miss. That will add fuel to the fire after latest disappointing US data, and force the USD further lower across the board.

But don't bet too much on a greenback return on a good number, or at least, not one that can be sustainable in time. The dollar could see a temporal rise indeed, but as long as inflation remains subdued, and a rate hike delayed to late 2017, chances of long term recovery are practically null.

Markets expect the world's largest economy to have added 180K new jobs in July, and as mentioned above, the unemployment rate is expected to tick lower to 4.8%. Salaries are expected to remain flat, with the average hourly earnings YoY seen unchanged at 2.6%, and the monthly figure expected to recover up to 0.2%. If the report comes in line with expectations, the market will pass the page fast, and intraday traders will end up disappointed.

As for majors reactions, the AUD and the JPY are among the strongest, which means that those two have more chances of rallying on a disappointing number. The Pound is among the weakest, alongside with the CHF, the preferred choices on a strong reading.

Gold will be interesting too: the commodity is bullish, which means that if somehow it ends up falling, buying at lower levels will be the way to play it.

And what about the EUR/USD?

The EUR/USD pair has been quite boring ever since the Brexit, confined to a tight range and unable to establish a trend. In fact, I can't remember when the pair has been actually trending…

Anyway, the levels to watch for this Friday, are 1.1235 to the upside, this week high, followed by a daily descendant trend line coming from 1.1615 now at 1.1280. A weekly close above it, will open doors for a continued advance up to 1.1460, a major static resistance level. Nevertheless, there's not much supporting the case for a strong EUR rally these days, and if this last level is reached, market will be happily entering selling mode.

Below 1.1110 on the other hand, can see the pair a return to its comfort zone around 1.1050. Below this last, the next supports come at 1.1000 and 1.0960, but approaches to this last will probably see strong buying interest containing the decline.