February Non-farm payrolls report is due for release tomorrow is expected to show the economy added 205K jobs, compared to the December figure of 242K. The unemployment rate is seen unchanged at 4.9%, while the average hourly earnings are seen rebounding 0.2% from last month’s 0.1% drop.
USD on a backfoot
US dollar is heading on a backfoot as Fed’s “confuse if you cannot convince†stance has killed Fed rate hike bets. The central bank began the year on hawkish tone, given the background of the first rate hike in December. This was followed by a dovish March statement that triggered a sell-off in USD. But, policymakers immediately came out on wires talking rate hike bets, which were killed once again by dovish Yellen this week.
Overall, it appears the policymakers are looking for reasons to delay the rate hike but do not want markets to believe the tightening is over. The confusion has led to a sell-off in the US dollar.
Only strong hourly earnings would support USD
Labor market strength is well known and a better-than-expected headline payrolls figure or a drop in the unemployment rate would do little to support to USD. This is because, NFP number has stayed resilient post December rate hike, stock markets are back to December highs, and unemployment rate is lower compared to what was seen in December. Still, the Fed has titled on the dovish side.
Read: Nonfarm Payrolls: who cares?
Consequently, USD bulls would need a super strong average hourly earnings figure. On the other hand, USD bears would love to see a weak payrolls figure along with not so impressive hourly earnings.
Gold risks falling to $1200 on strong NFP/wage growth data
Action in gold has caught many by surprise. Usually the metal is the best performer whenever there is a sharp fall in Fed rate hike bets (and USD). However, despite dovish FOMC statement released earlier this month, dovish comments from Yellen this week and the resulting sell-off in the USD, the metal remains in a falling channel on the technical charts.
This means the metal may take a dip even if the payrolls figure is strong; given it is heading into the event on a slightly weaker footing.
Gold daily chart
•Falling channel is seen on the daily chart, daily RSI stays in downtrend
Prices could drop to $1200 (falling channel support) and may even break lower if NFP and average hourly earnings print higher than estimates
On the contrary, weaker data could see prices run into resistance at $1270 (rising wedge – extended level).
GBP/USD – weak data could trigger inverse head and shoulder breakout
The recent dollar sell-off has also helped GBP/USD stage a recovery from the multi-year low of 1.3835. From the UK side of the story, Brexit remains a major threat, plus data is not doing so well either. Sure, the Q4 GDP was revised higher today, but it carried an alarming figure – current account deficit hit 7% of GDP.
Nevertheless, weaker US wage growth figures could trigger an inverse head and shoulder breakout in the pair.
GBP/USD daily Chart
Inverse head and shoulder neckline is seen around 1.4475.
A bullish break in case of a weak US data could open doors for a 1.4514-1.4578 -1.46 levels. Daily RSI remains in favor of bulls, hence a re-test of 1.4668 on weak data should not be difficult.
However, bulls should remain cautious about Brexit related news flow.
In case, the data is strong, a fresh sell-off to 1.41 in the next few days cannot be ruled out in
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