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Nonfarm Payrolls Preview: it will be different this time

The dollar is trading with a relatively strong tone ahead of the release of the August Nonfarm Payroll report this Friday, although just recovering from yearly lows against the EUR, and from multi-month lows against the JPY. Against other currencies, the greenback sunk earlier this week to levels close to yearly  lows, which means that the current movement is either a correction, or that the poor US currency has finally found a temporal bottom. That would likely be confirmed with the upcoming NFP report, particularly considering last month's reaction to the release and the latest ADP report.

Earlier this month, the US informed that during July, 209,000 new jobs were added, while the jobless rate fell to 4.3% and the annual wage growth remained at 2.5%, beating expectations, and triggering a nice dollar's rally that was later reverted. The big surprise weren't numbers, but the fact that the NFP report was actually able to move the market, as of lately, it was much about expectations and little about action.

Last Wednesday, the ADP survey offered a strongly positive surprise by informing that the private sector added 237,000 workers in August  beating expectations of around 185K. That was the largest monthly increase in five months, whilst June figure was upwardly revised to 201K from 178K. July's NFP and August ADP suggest that the employment sector has accelerated its recovery from previous strong levels. Again, the employment sector has been on the healthy path for long, and when thinking of the two main Fed's concerns, it has long not been one. Inflation on the other hand, is a stone around Fed's neck this year, which means that in the case of a strong report, dollar's advance won't guarantee continuation. However, if some critical levels are broken, dollar's recovery could extend in time.

Looking ahead, the Fed and the ECB are having monetary policies meetings during the next couple of weeks, and no doubts will be the ones to define the trend particularly for the EUR/USD pair, and in general for the greenback. But that doesn't mean that Friday's data can't be noisy particularly if they diverge from market's expectations. Beyond the numbers provided by big news agencies, market's sentiment, after the data mentioned above, is that the readings will be upbeat, which means that missing numbers will have a stronger effect sending the greenback lower across the board than strong figures that should anyway support the greenback.

The US economy is expected to have added around 180K new jobs in  August, while the unemployment rate is seen unchanged at 4.3%. Average hourly earnings are expected to post a modest advance yearly basis to 2.6% from 2.5% previously.

EUR/USD levels to watch

The EUR/USD pair is roughly 200 pips below this week and yearly high set at 1.2069, but the decline is barely corrective according to the daily chart, as to call for a bearish extension, the pair would need to break at least below 1.1700, where it currently has a long term ascendant trend line coming from April 17th low of 1.0603. In the mentioned chart, today's decline down to 1.1822 found support around the 20 DMA that maintains a moderated bullish slope far above bullish 100 and 200 DMAs. The Momentum indicator in the mentioned chart is aiming to regain the upside within positive territory, but the RSI keeps retreating from overbought territory, losing the downward strength and holding at 56, this last not being enough to confirm a downward move. Overall, the dominant bullish trend remains firm in place, with the current interruption seen as temporal. Payrolls, however, could be a game changer. An in-line with expectations headline, but a miss in wages' gains will likely result in an upward move for the pair, but upbeat numbers all around could push it lower.  

The 1.1920 level is the media strength resistance that if beaten, could see the pair extending firstly up to 1.1965 and later towards the 1.2000 region. A weekly close around this last should favor a retest  of the 1.2070 level, and even see the pair extending further up. On the contrary, 1.1790 is the key support to break to see the pair falling further, towards the mentioned trend line around 1.1700. Seems unlikely it will ease further below ahead of central banks' meetings. 

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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