NFP report preview: will the US jobs report support a dollar recovery?

After a bumper non-farm payrolls figure last month, will the Chinese coronavirus-led slowdown impact the US jobs market?

Can the US sustain the January pace of job growth?

January saw a sharp rise in payroll figures, with an unusually warm month playing a key role in bolstering employment levels. While the US impact of the coronavirus remains relatively minimal, their trade deal with China will be difficult to adhere to if their economic slump continues. The February purchasing managers index (PMI) data out of China highlights a huge slump in manufacturing and sector activity, and this could also impact US exports and hiring.

What does the ADP reading tell us?

While the correlation between the actual deferral percentage (ADP) and headline payrolls figures is unreliable, many will be looking at the huge revision to the January ADP figure as a potential warning sign that we could see something similar on Friday. The 225k reading from last months jobs report was the second highest in nine months. Thus, traders should keep an eye out for whether we see a downward revision to the January figure in a move that follows the ADP report.

Technical analysis: dollar index

The dollar index has been heavily sold over the course of the past fortnight, with the index falling back to the lower end of an ascending standard deviation channel that has been providing a guide rough guide as to where we could see the market turn to continue this pattern. With the price having declined into a confluence of the channel support and 76.4% Fibonacci retracement, we are starting to see the tide change as the bulls get back into the driving seat.

On the hourly chart, the recent downtrend is clearly coming under threat, with the rise into 97.42 providing a potential bullish signal. If we do see that swing high overcome there is a clear potential for a bullish reversal to continue the wider ascending channel seen on the daily chart.

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Be ready to act on the next non-farm payrolls report

Explore the influence the non-farm payrolls report has on American markets ahead of the next release on 2 July 2021.

  • Which markets could be more volatile after the NFP report?

  • Why was the report introduced and what does it tell us?

  • Why is the report important for traders?

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