Today is the most important day of the whole month for market players as today we will get to see the latest reading of the US NFP data. This economic reading commands the most attention among investors and traders as the economic data sets the trading tone for today and also influences it for the rest of the month. As always, the Fed will watch this data very closely, and it is highly likely to influence their monetary policy.
US and European stock futures are trading lower ahead of this data. Traders are going to take a very cautious approach ahead of the US NFP data. Generally speaking, there is minimal volume in the markets ahead of this data as the action tends to happen only after the economic reading. Market players are expecting the US NFP number to produce another set of strong readings and only that could push the US dollar index higher.
The dollar has retreated against the Japanese yen in the previous 48 hours, gained little against commodity currencies, and consolidated against the euro and pound. This is partly due to stock market declines, but at the end of the day, the Federal Reserve has signalled that interest rates will be raised by the end of the year. The minutes, ADP, and Treasury rates all served to reaffirm the Fed’s position.
The US NFP data will be released at 13:30 BST, and the forecast for the number is 553K, while the previous number came in at 426K. The US unemployment rate is also expected to fall further to 4.1%. The previous reading was at 4.2%, and the Average Hourly Earnings m/m is expected to increase to 0.4% from its previous reading of 0.3%
The Market Playbook
Now the important part and how this is going to impact the markets. Well, the range of US NFP estimates for today’s number is wide, and it is expected to be anywhere between the 300K to the 700K mark. But we think the most important number is 250K. Meanwhile, anything lower than 250K, could throw the stock market out of balance and the Fed. That’s because if the number comes out below the 250K reading, market players will begin to question the current aggressive stance from the Fed. Remember, the Fed has said that they want to increase the interest rate three times this year or even possibly four times, which is an extremely hawkish monetary policy. A weaker reading will certainly make the Fed question their current monetary policy as the Fed may not want to tighten the monetary policy while economic conditions are deteriorating.
For the dollar index to gain more momentum and the stock market to continue its uptrend, we need to see a strong reading today. This means that the US NFP reading needs to be above the 650K.
Such a scenario may be positive for the stock market as the stock traders will only feel comfortable with hawkish monetary policy if economic conditions are strong. If stock traders see that economic health isn’t improving but in fact losing steam, while the Fed is holding on to a hawkish stance, could spell trouble for the stock market.
Gold’s price has been under pressure for the past two days as economic data has been printing strong numbers. This has ignited a rally for the dollar index and as a result we have seen the gold price moving lower. In addition to this, traders know that the Fed is serious about controlling inflation now and as a result they are adopting a hawkish monetary policy.
Today, the gold price is expected to remain volatile, and it is likely that we may see wild swings in the gold price. If the US NFP reading disappoints today, we are likely to see the gold price sharply moving to the upside. However, if the number comes in extremely strong, which means above 500K, we could see further weakness in the gold price.
The near-term resistance for the gold price is at 1830 while the support is at 1760.
In the crypto space, punishment continues for the Bitcoin price and for the rest of the crypto market. Bitcoin prices are now seriously under selling pressure and the price is highly likely to test the support of 40K. If the Bitcoin price fails to stay above this support zone, we are likely to see more pain for the Bitcoin price. As for the second biggest coin by market cap, Ethereum, it is highly likely that the price may test the support at 3K.
Now one big question is how Bitcoin will react to the US NFP data? Well, Bitcoin has started to behave a lot more like a riskier asset which means when a risk-on rally is on, we do see the bitcoin price rallying as well. In other words, Bitcoin has developed a strong corelation with the stock market and when the stock market moves higher, we also begin to see more bids coming for the Bitcoin price. In absence of a risk-on rally, Bitcoin’s price begins to move lower. So, a disappointing US NFP number isn’t going to bring a rally for Bitcoin.