The FX Market - A Ticking Time Bomb Courtesy Of NFP
Why has the FX Market been tiptoeing for the last few days? Is something big due to happen? Is this the calm before the storm? These are questions we are all asking ourselves, but whilst we sit here wondering what is happening, we expect this to be very short lived since we have the biggest news announcement of this month due very shortly! Yes, that’s right, Non-Farm Payroll figures will be announced at 13:30 GMT+1.
Trading NFP is not for the faint-hearted since many novice traders will sit back whilst not covering their entry levels and get burnt soon as the storm, also known as NFP, arrives and causes chaos across the whole market.
What can we expect from today's US Non-Farm payroll?
The markets have seen a little jostling ahead of the US employment report for June, with the USD coming under some pressure from European names first thing. Activity has calmed since as the natural instinct is to stay onside with the USD given the data series has been consistently strong and is expected to stay that way.
What is the consensus?
The market consensus is looking for a 200k rise in job gains, which would be in line with the 3-month average in the last few years, but any miss on the number will have to be taken in context and measured against growth in earnings. Jun is expected to see another (hourly) earnings rise of 0.3% on the month, and if it is any higher than this, would offset any concerns over the headline read.
Of course, if both the headline and earnings growth both beat expectations, then a retest of the recent (USD) highs will be expected, though as we have seen, this has been a struggle lately despite strong numbers in the surveys, trade and of course inflation.
The Fed, however, is already largely expected to raise rates 4 times this year, 2 of which have already been conducted, so the focus will be on how the rates market prices better data beyond 2018. Yield curve flattening is something which was highlighted in the FOMC minutes this week, so the Fed has a balancing act on short-term rates as they clearly do not want to risk raising rates too quickly and bring the next economic downturn closer in. They also do not want to let inflation run away with it, so all in all, the data today will have to be measured in the response in the rates pricing.
How has this impacted the FX Pairs?
As we have already noted a few times, the USD index has backed off 95.50 a few times noted - translating into the 1.1500 level in EUR/USD. AUD and NZD have also recovered a little - tentatively so as yet - while USD/CAD met its match at 1.3380-1.3400 and has been treading water around 1.3150 since.
Be safe when trading NFP!