US Nonfarm Payrolls: How will January NFP release affect the US Dollar?

• US Nonfarm Payrolls market consensus expectation is for 185K job gain in January, below December’s 223K.

• US Dollar’s could move depending on the Average Hourly Earnings data, which could impact the Fed future decision-making.

• The Bureau of Labor Statistics will also release the new Unemployment Rate, foreseen to rise to 3.6%.
  

The US Bureau of Labor Statistics (BLS) will release the US jobs report, including Nonfarm Payrolls (NFP) number for January, on Friday, February 3rd at 13.30 GMT. The market anticipates that the US economy created 185K new job positions in the past month. A worse-than-expected result could be on the cards as the US ADP Employment report showed a plunge to 106K in January, unexpectedly falling short of the 178K consensus and lower than the 253K from the previous month. Lower US job numbers could prolong the USD’s decline.

The US Dollar has been meandering near 10-month lows against its major rivals, as markets read the latest comments by Federal Reserve (Fed) Chairman Jerome Powell as largely dovish.

Powell referred repeatedly during a news conference to the “disinflationary” process that now appeared to be underway, which markets view as the Fed could be turning a corner on its tightening cycle. While that justifies a weaker USD, the move may have gone too far. This should imply the beckoning of an upside correction in the US Dollar should the Nonfarm Payrolls headline number deliver a positive surprise.

How many jobs will the US economy add to January Nonfarm Payrolls report?

Friday’s United States (US) economic docket highlights the release of the closely-watched US monthly labor market data for January. And, the Nonfarm Payrolls expectations are that the economy added 185K jobs during the reported month, down from the 223K job additions in December. The Unemployment Rate is anticipated to tick slightly higher to 3.6% in January. 

Aside from the headline NFP number, investors will closely examine the Average Hourly Earnings, which could offer fresh insight into the possibility of any further rise in inflationary pressures. The US Average Hourly Earnings are expected to print 4.9% YoY in January, up from 4.6% reported in December while on a monthly basis, the wage growth is seen unchanged at 0.3% in the reported period.

The RBC Economics research team also has modest expectations for this US jobs report: “US payroll employment likely continued to rise in January, although the 150K increase in payrolls we expect would be the smallest gain since a drop in December 2020. The labour market remains tight and layoffs are still very low. But the number of job openings has been edging lower and we look for a tick up in the unemployment rate to 3.6% from 3.5% in December.”

Will the EUR/USD bulls profit from the US Nonfarm Payroll report?

The Nonfarm Payrolls report is scheduled for release at 13:30 GMT on Friday, February 3. As the dust settles over the dovish Federal Reserve and the European Central Bank monetary policy decisions, the EUR/USD pair has entered a phase of downside consolidation near the 1.0900 threshold. Weaker US employment details could trigger a fresh leg down in the USD and provide an additional boost to the main currency pair.

In contrast, any positive surprise could offer legs to the ongoing USD recovery but any upside could be limited amid increased expectations that the US central bank will pause its rate-hiking cycle. This is what revives the US Dollar bears and suggests that the path of least resistance for the EUR/USD pair is to the upside. 

Dhwani Mehta, Analyst at FXStreet, offers a brief technical overview and outlines important technical levels to trade the EUR/USD pair: “With a potential bullish crossover on the daily chart, represented by the bullish 100-Daily Moving Average (DMA) piercing the flattish 200DMA from below, the upside appears more compelling for the EUR/USD pair. The 14-day Relative Strength Index (RSI) is holding comfortably above the midline, keeping buyers hopeful. The pair needs to recapture the 1.0950 psychological barrier to resume the uptrend toward the 1.1000 round figure. 

“On the downside, the EUR/USD pair could extend the correction toward the bullish 21DMA at 1.0837 should the previous day’s low fail to offer support. Further south, the January 31 low at 1.0802 will come to the rescue of the Euro buyers, ” Dhwani adds further.

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About the Nonfarm Payrolls report

The US Nonfarm Payrolls report, released by the US Bureau of Labor Statistics, shows the total number of new positions generated in non-agricultural businesses over the preceding month.

Due to its high correlation to US Federal Reserve decisions about economic policy, monthly changes in payrolls can trigger high volatility in financial markets. The NFP number is released together with revisions of previous months’ data, which is also be subject to scrutiny from traders.

The Unemployment Rate and wage figures printed as the Average Hourly Earnings are often as important as the headline figure, with better-than-expected readings being generally considered as favorable (or bullish) for the US Dollar, while worse-than-expected ones are seen as negative (or bearish) for the USD.