Market Analysis

Another Payrolls Day Dawns

Friday heralds the release of US jobs data for July and will be the object of keen focus, as always, by currency market participants. So what should traders expect from the data and, perhaps more importantly, what might traders expect other traders to expect from the data. As to the former, a poll of economists by ThomsonReuters sets the consensus forecast of a rise in the keynote non-farm payroll (NFP) of 183,000 and a downtick in the headline US unemployment rate to 4.3 per cent from 4.4 per cent. Some, such as Switzerland’s UBS, agree with that forecast of a 0.1 per cent fall in the US unemployment rate though it should be said that UBS itself is looking for a slightly lower 175,000 rise in NFPs.As always, traders will also have to look out for any revisions to previous months. So that’s the ballpark for forecasts. The more difficult question to answer is how the market may react to what comes out. The price action of recent weeks would suggest that traders have been happier looking for reasons to sell the dollar than to buy it. But that might also mean the market is going into the US jobs data on Friday with a short dollar position that’s already well-developed. Some analysts are wondering if how the market reacted to Wednesday’s 178,000 rise in the ADP National Employment Report (marginally below the 185,000 increase that economists polled by Reuters had forecast) is an indicator of how trader behaviour may manifest itself after Friday’s US jobs data release.

The view of Japan’s MUFG is that “the US dollar failed to derive any support from the release of the latest ADP survey which provided a reassuring signal that US employment growth has likely remained solid. The ADP survey estimated that the private sector added 178k jobs in July which is broadly in line with average non-farm private employment growth in the previous three months.” While noting that “in recent months the ADP survey has proven less accurate than usual as a leading indicator for the non-farm payrolls report, ” MUFG would nonetheless “be surprised if employment growth has not remained solid given other leading indicators remain favourable as well.” But, MUFG writes “the lack of reaction to [Wednesday’s] ADP survey clearly highlights that another solid payrolls report on Friday is unlikely to prove sufficient to prompt a corrective rebound for the US dollar.” In the Japanese bank’s opinion “for the US dollar to stage a rebound it will likely require a significant upside surprise for earnings growth” and that therefore “the most likely scenario is that the US dollar will continue to remain offered.” Some traders will agree with that notion, others not.  All will be revealed after the US data release at 1330h London time on Friday.

Written by Neal Kimberley, External Currency Analyst.