USD: Why You Shouldn't Bank on Strong Non-Farm Payrolls | DZHI - DZH International 

USD: Why You Shouldn't Bank on Strong Non-Farm Payrolls

  • Kathy Lien
  • 6 December 2019


Daily FX Market Roundup 12.05.19


By Kathy Lien, Managing Director of FX Strategy for BK Asset Management


US non-farm payrolls is traditionally one of the most market moving pieces of data for currencies and equities but its impact depends on how the jobs report affects monetary policy.In the case of the Federal Reserve, they've made it clear that after lowering interest rates three times this year, further easing is unnecessary. So if NFPs rise more than expected, it would validate their on hold stance and alternatively, if the numbers are weak, the central bank will still keep interest rates steady when they meet next week.


Does not mean that the US dollar will shrug off payroll surprises? No.


Economists are looking for very good numbers and the arguments in favor of a softer payrolls report exceeds a stronger oneso there's a big disconnect from expectations and data which can lead to volatility. According to ADP, private payrolls rose only half the amount of October, 4 week average jobless claims increased, Challenger reported fewer declines in layoffs and in the manufacturing sector, jobs were shed at a faster pace. Continuing claims were unchanged and the confidence indicators offset each other with Conference Board reporting the 4th consecutive month of weaker sentiment and the University of Michigan reporting an improvement in confidence. Yet we can't ignore the services sector, which added jobs at its fastest pace in 4 months - this number has the strongest correlation with NFPs and is the only reason why payrolls could rise. Economists are looking for the US to add 185K jobs in November, up from 128K in October. They are also looking for wage growth to accelerate and the unemployment rate to hold steady. While we believe that job growth improved over the last month, we are skeptical that it increased as much as 185K and anything short of 160K could trigger a sell-off in the US dollar.


Risk appetite is also wobbly which means that a softer report could have a bigger impact on USD/JPY and other major currencies than a strong one.If job growth falls short of expectations and wage growth fails to improve like economists anticipated, USD/JPY could fall towards 108 and EUR/USD could extend its gains to 1.1150.


Arguments in Favor of Weaker Non-Farm Payrolls


ADP Employment Gains Shrink to 67K vs. 121K in October

4 Week Average Claims Rise to 217K from 215K

Conference Board Confidence Declines for 4th Straight Month

Challenger Reports -16% Drop in Layoffs vs. -33.5%

Employment Component of Manufacturing ISM Contracts Further


Arguments in Favor of Stronger Non-Farm Payrolls


Employment Component of Services ISM Highest Since July

Stronger University of Michigan Consumer Sentiment Index


The US is not the only country with labor market numbers scheduled for release Friday.Canada also releases its jobs report and like the US, improvements are expected. The difference is that the bar is set low for Canada and high for the US. Economists are looking for job growth to return in November after falling in October. According to IVEY PMI, employment conditions rose back to expansion levels after contracting for 2 months in a row. The Bank of Canada's less dovish outlook sparked a major reversal in USD/CAD on Wednesday that was confirmed by this morning's IVEY report. If jobs beat expectations as well, we should see USD/CAD underneath 1.3150.


Euro and sterling extended higher on Thursday while the Australian and New Zealand dollar rallies fizzled.The US is still describing trade talks as going well but China wants the US to reduce tariffs before agreeing to Phase 1 trade deal. The prospect of a Tory win and the hope for a massive spending increase in Germany supports the European currencies but at the end of the day, all of the major currencies will take their cue from tomorrow's US non-farm payrolls report and fresh trade headlines (if there are any).




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About the Author
Kathy Lien
Kathy Lien is Managing Director and Founding Partner of BKForex. Having graduated New York University’s Stern School of Business at the age of 18, Ms. Kathy Lien has more than 13 years of experience in the financial markets with a specific focus on currencies

Ms. Kathy Lien is Managing Director of FX Strategy for BK Asset Management and Co-Founder of Her career started at JPMorgan Chase where she worked on the interbank FX trading desk making markets in foreign exchange and later in the cross markets proprietary trading group where she traded FX spot, options, interest rate derivatives, bonds, equities, and futures.

In 2003, Kathy joined FXCM and started, a leading online foreign exchange research portal. As Chief Strategist, she managed a team of analysts dedicated to providing research and commentary on the foreign exchange market.

In 2008, Kathy joined Global Futures & Forex Ltd as Director of Currency Research where she provided research and analysis to clients and managed a global foreign exchange analysis team. As an expert on G20 currencies, Kathy is often quoted in the Wall Street Journal, Reuters, Bloomberg, Marketwatch, Associated Press, AAP, UK Telegraph, Sydney Morning Herald and other leading news publications.

She also appears regularly on CNBC’s US, Asia and Europe and on Sky Business. Kathy is an internationally published author of the bestselling book Day Trading and Swing Trading the Currency Market as well as The Little Book of Currency Trading and Millionaire Traders: How Everyday People Beat Wall Street at its Own Game all published through Wiley. Kathy’s extensive experience in developing trading strategies using cross markets analysis and her edge in predicting economic surprises serve key components of BK’s analytic techniques.