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Nonfarm Payroll preview: Get ready for more Dollar weakness

  • Dollar's chances of gaining some ground conditioned to salaries.
  • Solid employment growth through 2017 not enough for the Fed.

The US monthly employment report will be out this Friday, but traders should be wondering whether it will actually matter in the current dollar-bearish environment. The greenback can't find its footing, under selling pressure ever since the December Fed's meeting. The central bank failed to surprise the market by doing what speculative interest priced in a couple of months ahead of the event. The Minutes of the meeting, released this week, showed that policymakers remain divided and more relevant, puzzled about lagging inflation. Inflation, is still the key for the greenback, as rising prices are today, the only chance the greenback has to regain the upside. That's why, this last semester, the NFP report has been more about average hourly earnings than jobs' creation.

The ADP survey showed that the private sector added 250K new jobs in December, largely exceeding market's estimates, indeed suggesting an upcoming strong report. According to market's forecast, the US economy is expected to have added 190K new jobs in December, following a 228K increase in November. The unemployment rate is expected to remain unchanged at 4.1%. Finally, average hourly earnings are seen up 0.1 percentage points, to 0.3% MoM, and unchanged YoY at 2.5%.

If the headline numbers match or surpass expectations, would mean that the world's largest economy added over 2.1 million jobs during 2017, a pretty solid level that anyway matches what speculative interest knew, and priced in all through the year. Having said so, the headline figure has to be really impressive to actually move the greenback higher, but won't be enough by itself: as usual, the key will be salaries, as a pickup there is urgently needed. Higher salaries are a key factor in rising inflationary pressures, the broken leg of Fed's base.

EUR/USD levels to watch

The EUR/USD has a major resistance area just ahead of the current level, as its 2017 high was set at 1.2092, the second best high ever since topping at 1.2101 in January 2015. Technically bullish, the 1.2100 region is critical as it needs to accelerate through it to actually gain further momentum upward, with short term resistances then at 1.2140 and 1.2175, but a final target at 1.2260 a long.-term static resistance area. Short-term buying interest, on the other hand, is aligned around 1.2200, with a break below the level favoring a deeper corrective movement toward 1.1960 and 1.1920, although even with a weekly close around this last, the bullish trend will remain firmly in place. 

Author

Valeria Bednarik

Valeria Bednarik was born and lives in Buenos Aires, Argentina. Her passion for math and numbers pushed her into studying economics in her younger years.

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