Matthew Weller | Dec 04, 2020 02:22AM ET
With an end to the global pandemic finally in sight, risk appetite has surged across the board, with global indices seeing one of their best months in decades while higher-yielding currencies like the New Zealand and Australian dollars have surged against safe havens like the Japanese yen and US Dollar. However, these moves have been driven by expectations about a future economic recovery, but the current situation for the US labor market is decidedly more dour. Accordingly, economists are expecting Friday’s closely-watched Nonfarm Payrolls report to show that the US economy created just 500k jobs in November, with average hourly earnings rising just 0.1% and unemployment ticking down 10bps to 6.8%:
As regular readers know, there are four historically reliable leading indicators that we watch to help handicap each month’s NFP report:
As we’ve noted repeatedly over the last few months, traders should take any forward-looking economic estimates with a massive grain of salt given the truly unparalleled global economic disruption as a result of COVID-19’s spread. That said, weighing the data and our internal models, the leading indicators point to a potentially worse-than-expected reading from the November NFP report, with headline job growth potentially rising by “just” 300-400k jobs, though with a bigger band of uncertainty than ever given the current state of affairs
Regardless, the month-to-month fluctuations in this report are notoriously difficult to predict, so we wouldn’t put too much stock into any forecasts (including ours). As always, the other aspects of the release, prominently including the closely-watched average hourly earnings figure, will likely be just as important as the headline figure itself.
h2 Potential market reaction/h2See wage and job growth scenarios, along with the potential bias for the U.S. dollar below:
Earnings |
Earnings 0.0-0.2% m/m |
Earnings > 0.2% m/m |
|
|
Bearish USD |
Slightly Bearish USD |
Neutral USD |
400k-600k jobs |
Slightly Bearish USD |
Slightly Bullish USD |
Slightly Bullish USD |
>600k jobs |
Slightly Bullish USD |
Bullish USD |
Bullish USD |
When it comes to the FX market, there are no two ways about it: The US dollar has been in freefall for the past three weeks as traders bail out of safe haven trades in anticipation of a global economic recovery in 2021. If we see a weaker-than-anticipated jobs report (either on a headline basis or in the average hourly earnings figures), readers may want to consider going long AUD/USD, which has broken above strong previous resistance near 0.7400 and could now play “catch up” with other major pairs. Conversely, if we see even a decent jobs report, traders may look to take profits on US dollar shorts ahead of the weekend. In that scenario, readers could consider shorting GBP/USD, which is testing previous resistance near 1.3500 and could be vulnerable to a deeper pullback if Brexit talks deteriorate over the weekend.
Original Post
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.