Nonfarm Payrolls Preview: New year, old data

The 2020 macroeconomic calendar will kick-start with December employment figures, the first relevant piece of data to be out this year. However, the market can’t be any less concerned about fundamentals.

Relief news related to the trade war between the US and China, as both countries are set to sign phase one of the trade deal next week, were overshadowed by the escalating conflict in the Middle-East. US President Trump ordered the killing of an Iranian Commander, while Tehran responded by launching missiles on US military facilities on Iraq. The conflict deescalated afterwards, although investors remain on there toes and financial assets are extremely sensitive to risk-related headlines, which can easily overshadow macro data.

 Anyway, and back to employment figures, the US economy is expected to have added 164K new jobs in December, after gaining 226K positions in November. The unemployment rate is seen unchanged at 3.5%, as well as the participation rate is foreseen at 63.2%. Average Hourly Earnings are seen up by 0.3% MoM and by 3.1% YoY, pretty much unchanged when compared to the previous month.

Leading indicators providing positive signals

 For a change, leading indicators ahead of the Nonfarm Payroll´s release are providing encouraging signs. The country added 266K jobs in the previous month, while the number of layoffs in December fell to 32.8K from 44.6K previously. Furthermore, the University of Michigan Consumer Confidence Index bounced at the end of the year to 99.3.

The ISM PMI reports offered discouraging signals, as the employment sub-component of the  Non-Manufacturing index was slightly lower when compared to the previous month, down to 55.2 from 55.5. The employment sub-component of the Manufacturing PMI fell into contraction territory to 45.1.

US jobs report pre-release checklist – Dec 6th, 2019

Dollar’s possible reaction to different scenarios

As long as there are no risk-related headers, and given that the dollar has the market’s favour. An upbeat report will likely trigger gains across the board. Also, an upbeat report will likely underpin equities, which means that the USD/JPY pair may be the best performer. A negative outcome, on the other hand, could push the pair back lower, particularly if it remains below 109.70.

The Australian dollar is among the weakest currencies, which means that it will tend to follow the same behaviour as the USD/JPY, despite rising equities tend to support the greenback.

The GBP/USD pair, on the other hand, is Brexit-dependent, and will probably have a less relevant reaction to the report.

The EUR/USD pair is quite a case. It has been trading within well-limited intraday ranges for months, and it seems unlikely that the NFP report could break the stalemate situation. For sure, reading above expected would push the pair lower, with 1.1065 being the most relevant support and bearish target. The employment report needs to be extremely disappointing to push the pair back toward the 1.1200 price zone.