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US jobs report preview: could better jobs numbers derail a dovish Fed?​

With US jobs numbers improving, could Friday’s US jobs report drive the dollar higher?

This week’s US jobs report brings further light for Federal Reserve (Fed) watchers, as the continued economic uncertainty provides volatility for traders. Coming off the back of a Fed rate-cut, most will perceive this data in the context of the outlook for further rate cuts. From an unemployment standpoint, many will see a rate-cut as unnecessary as it remains around record lows.

However, there is more to it, with this month seeing a three-year high in core durable goods orders, and a jump in core personal consumption expenditures (PCE) price inflation. We did see a second quarter (Q2) gross domestic product (GDP) figure of 2.1% come in heavily below the Q1 rate of 3.1%, yet that was above market expectations of 1.8%. Thus, there is less reason for the Fed to take an uber-dovish stance going forward. However, this week’s jobs report could play a vital role in guiding markets on the future rate path for the Fed. Thus, when the figures are released, markets will be reacting to the economic repercussions, but also what it could mean for future interest rates at the Fed.

What to look out for on Friday

When the US jobs report is released, markets will almost always react to the payrolls figure first, with many algorithms trading specifically around the strength or weakness of that figure. Last time we saw 224,000 jobs added in June, with markets predicting a figure around 170,000 for July. Next markets are likely to focus on the average hourly earnings figure, which provides markets with a proxy for future inflation. Markets expect to see the year-on-year (YoY) figure rise to 3.2% (from 3.1%), with the monthly number remaining at 0.2%. Finally, keep an eye out for the unemployment rate figure (predicted to remain at 3.7%), and the participation rate. Be aware that when you see the payrolls and unemployment rate both rise or both fall, that is typically attributed to a shift in the participation rate.

Where now for the dollar?

Looking at the dollar, we have seen a resurgence over the past month, with the ascending trendline coming back into play once more. Tonight’s Fed meeting is likely to bring volatility, but with some of the US economic data improving there is a strong possibility that this phase of rate cuts is relatively brief. Should the Fed indicate such an outlook, we could see the dollar rise towards trendline resistance. Such a rally through the May peak of $97.86 would signal a continuation of the uptrend in play since 2018. However, questions would be asked should price reach trendline resistance. To the downside, the failure to break $97.86 could set us up for a period of downside, with the post-Fed price ability to break through this level key to setting up sentiment for the jobs report.

This information has been prepared by IG, a trading name of IG US LLC. This material does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. You should not treat any opinion expressed in this material as a specific inducement to make any investment or follow any strategy, but only as an expression of opinion. This material does not consider your investment objectives, financial situation or needs and is not intended as recommendations appropriate for you. No representation or warranty is given as to the accuracy or completeness of the above information. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. Any research provided should be considered as promotional and was prepared in accordance with CFTC 1.71 and designed to promote the independence of investment research. See our Summary Conflicts Policy, available on our website.

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