Date: 06 Jul 2018

It’s Non-Farm Payrolls day again. At 1330h UK time, the US Non-Farm Payrolls will be released with a consensus expectation for a rise of 195,000 in June, down from May’s 233,000 print. Whether the fact that Thursday’s ADP survey showed a rise of 177,000 private sector jobs, as opposed to the median increase of 190,000 among economists polled by Reuters, will lead some to trim their NFP expectations is unknowable. In reality there are two ways of looking at the ADP figure. It could be taken at face value. Those who are more pessimistic on the outlook for the US economy would likely be inclined to this view. Certainly the US dollar hit a three-week low versus the euro (EURUSD) yesterday and that move would have received an assist from the ADP number. But those who are pessimistic on the US economy should also take into account that currently there are a record number of 6.7 million unfilled jobs in the United States. The sub-forecast ADP figure might be reflecting the tightness of the US labour market. After all the US unemployment rate, at 3.8 per cent, is already at an 18-year low. But if that’s the case then even tighter US monetary policy might be needed. That might explain why the yield on the benchmark 10-year US Treasury didn’t fall on the ADP miss. But where does that leave the NFP-related balance of risk for EURUSD on Friday? On Thursday the price action in EURUSD took it to a three-week high. If EURUSD goes into the NFP at or around the top end of its recent range, traders might logically infer that the market as a whole is running long euros into the US data.  The risk then would arguably not be that the NFP proves to be a downside miss like the ADP figure but that it meets or exceeds the 195,000 consensus forecast, triggering position adjustments. NFP-day risk doesn’t just relate to the data itself. Traders might also wish to keeep an eye out for the average hourly income figure where consensus appears to be for a 0.3 per cent rise month-on-month, equating to a 2.8 per cent increase year-on-year.

Written by Neal Kimberley, External Currency Analyst.