Non-farm payrolls look ahead

The market is gearing up for Friday’s US jobs report, which comes at an interesting time for Fed policy. 

US non-farm payrolls (NFPs) are upon us once more, with the US expecting to have added 180,000 jobs in January, an improvement over December’s 148,000. Average hourly earnings are expected to have risen by 0.3%, in line with last month’s figure.

NFPs are not quite the blockbuster event that they once were. In the financial crisis, the figure was closely watched, being a key barometer of the health, or otherwise, of the US economy. Now, the recovery is firmly in place, and jobs growth has oscillated around the 200,000-per-month line since 2012. Wages are still the missing piece in the puzzle, although even here the month-on-month figure has recovered from its October 2017 reading of -0.1%.

The main reason for continuing to watch NFPs remains the influence they will have on the Federal Reserve (Fed). The market currently expects three rate increases from the Fed, under its new leader, Jerome Powell. Markets will be watching to see if wages begin to pick up. Since the jobs recovery is done and dusted, it is the wage figure that should bear watching. A tighter labour market should prompt wage increases, although that has yet to filter through, it seems.

USD/JPY remains one to monitor, as NFPs loom on Friday. A remarkable drop in the pair has seen it head back towards the ¥108 level, an area that was staunchly defended throughout 2017 (blue rectangle on chart).

However, while we may see a bounceback here, the longer-term decline in the dollar means rallies are likely to be sold. December and January witnessed a notable series of lower highs, so we would expect bearish momentum to persist, as long as the price fails to move back firmly above ¥114. A recovery back above ¥109 should be taken as an indication that the buyers are back in charge, but it is unlikely to last.

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