What Will NFPs Tell Us About The Dollar?

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Market Drivers for October 22, 2013
Dollar slightly bid as markets get ready for NFPs
UK PSNB better
Nikkei 0.13% Europe 0.12%
Oil $98/bbl
Gold $1313/oz.

Europe and Asia:
GBP UK PSNB 9.4 vs. 10.4B

North America:
CAD Retail Sales 8:30 AM
USD NFPs 8:30 AM

Its been a typically quiet pre-NFP night in the currency market, with most major pairs suspended in 20 point ranges as traders await the delayed report due today at 12:30 GMT. Ahead of the report the dollar was mildly bid across board with USD/JPY trading near the session highs at 98.40.

Despite the mixed data that preceded it including slightly weaker than expected ADP report and a big decline in the employment subcomponent of the ISM Services release, the currency markets appear to be basically upbeat about September’s data. The consensus view is that the NFP should print at 180K a bit higher than last month’s reading of 169K.

Although much has been written about the lack of importance of today’s report given its delayed nature and the lack of visibility due to the US government shutdown, today’s numbers may prove valuable nevertheless for several reasons. First and foremost, today’s report will provide the last “clean” reading of the state of the US labor market before we enter several months of adjustments due to the recent closure. If the growth in September remains on track it could allay market concerns about the slowdown in the US economy and traders would be more willing to shrug off any aberrations in the next few month’s data.

However, if the September NFPs print markedly worse than expected they would suggest that the US economy was already slowing before the US government shutdown and therefore the actions of the past three week would likely exacerbate that trend. A weak NFP number would likely shift any expectations regarding taper all the way to March of 2014 and put further downward pressure on the buck.

On the other hand if the NFPs print above the key 200K mark which is one the thresholds for Fed to taper QE, the markets could respond with a strong dollar rally pushing USD/JPY towards the key 99.00 mark and EUR/USD back to 1.3500 support as enthusiasm about the resilience of the US economy trumps any lingering concerns over the US government shutdown.

Boris Schlossberg
Managing Director

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