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Nonfarm Payrolls Preview: rate hike priced in, NFP needs to surprise big

The last month of the year is finally here, and will kick start with the release of the US Nonfarm Payroll report. The stars of the month however, will be the ECB and the FED, with the first expected to announce an extension in its stimulus program and the second forecasted to raise rates. Indeed, the employment report will be taken as a new hint of whether the FED can act this December, although for the past month, policymakers have been doing their best to limit the impact of a rate hike, anticipating the move.

The US economy is expected to have added 175,000 new jobs in November, slightly above October's 161K, while the unemployment rate is expected to remain unchanged at 4.9%. Average hourly earnings are expected  to have rose by 0.3% monthly basis, and to remain flat at 2.8% in the year-on-year comparison.

Earlier this week, the ADP survey showed that the private sector added 216,000 new jobs in the same month, well above analysts´ expectations of 165,000, somehow anticipating a solid NFP. Better-than-expected figures will probably support the greenback, but considering that the market has already priced in a rate hike, the movement could be limited, particularly if the figures result in line with market's expectations. It would take a strong upward surprise, and not only in the headline number, to re-ignite dollar's rally.

The US Federal Reserve will meet next December 14th, and should be a shocker if traders save their bullets until then.

EUR/USD levels to watch

The EUR/USD pair has been stuck around the 1.0600 for most of this week after bottoming at 1.0517, a year low, in the previous one. The bearish momentum seen over the previous weeks has somehow eased, but given that the pair has remained below the 1.0700 level, the 23.6% retracement of the 1.1299/1.0517 decline, an interim bottom is not yet confirmed. In fact, the consolidative stage has helped daily indicators to correct the extreme oversold readings achieved early November, but in the same chart, a sharply bearish 20 DMA has extended its decline down to the 1.0680 region, where the pair topped this week.

If the upcoming employment report comes in line with expectations, the most likely scenario is that the pair will remained contained within the 1.0517/1.0700 range. It would take a very disappointing headline number and a recoil in wages to push the pair beyond the higher end of the range and the mentioned Fibonacci level, with scope then to advance up to 1.0745 first, and towards 1.0790 later.

A shocking upward surprise on the other hand, may take the pair down to 1.0505, December 2015 low, while below this last, the dollar can extend its gains, with the pair then falling down to 1.0460, 2015 yearly low. 

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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