Nonfarm Payrolls Preview: get ready to be disappointed. Again

No, I'm not talking about the probable Payroll's headline. I'm specifically referring to price action. And that should not come as a surprise for those following financial markets these last few months. Unless the headline reading results in a huge divergence from market's expectations, the report will hardly be able to move the bar. The explanation is simple: the job's sector has been extremely healthy and growing for over three years already. It has been long since it has stopped to be a concern for the US Federal Reserve.

In fact, wages within the report have been gaining more weight month after month, as wages are key for inflation. And Fed's monetary policy decisions are bases in two main pillars: employment and inflation. As said above, employment is no longer a concern, but inflation is. And wages have a strong correlation with inflation, as people won't spend it they don't make enough to do so. Poor wages are a drag for inflation, strong wages are on the opposite a sign that inflation may start to growth.

In May, the US economy is expected to have added 185,000 new jobs, a decent figure but below the 211K added in April. The unemployment rate is expected to hold unchanged at 4.4%,  while monthly wages are expected to have advanced by 0.2% monthly basis, quite a soft figure. Wages have risen by 2.5% when compared to a year earlier last month, down from a peak of 2.9% achieved last January.

The ADP private survey released this Thursday showed that the private sector added 253,000 new jobs in May, suggesting the NFP may beat expectations, although both reports not always correlate. Weekly unemployment claims surged in the week ended May 26 but remained at multi-decades lows in the previous ones.

That will make more relevant a negative headline surprise, particularly if wages remain soft. Given the poor performance of the greenback, chances of sharp gains in the EUR and the JPY are higher. On the opposite, a positive surprise coupled with strong wages should see the dollar rallying, particularly against weakened GBP and AUD.

 

EUR/USD levels to watch

The EUR/USD pair holds near its 2017 high, having been mostly range-bound for the last two weeks, after nearing 1.1299 the high reach last November following the victory of Donald Trump in the US election.  Much of the rally was backed by uncertainty surrounding the new US administration ability to fulfill its promises, and rising inflation in the EU, which triggered speculation of tapering in the Union, regardless Draghi's firm stance against it.

The pair corrected lower earlier this week, but met strong buying interest around 1.1120, while in the daily chart, the pair has also a bullish 20 DMA, being a critical support for this Friday, as below it, the downward corrective movement can continue, with 1.1080, and 1.1030 as the next supports/probable bearish targets. The pair could be at risk of falling further with a weekly close around this last, but only below 1.0930 the pair will enter a bearish market.

The immediate resistance is 1.1267, followed by the 1.1300 level, with a break above it probably triggering a stronger advance up to 1.1340/60. A weekly close near this last should favor an advance up to 1.1460 next week, a major long-term resistance.