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. The economic data not only set the trading tone for today but also 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 decision.
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 a minimal volume in the markets ahead of this data as the action tends to happen only after the economic reading. Market players expect the US NFP number to produce another set of decent readings, which could only push the US dollar index higher.
The dollar has picked up strength against the Euro, Japanese Yen, British Sterling, and other G10 currencies. The dollar’s move against the Sterling is an important one to watch as the GBP/USD fell to its lowest since April 2020. The pair has recorded three consecutive weeks of losses, and the chances are that we may see a rebound soon, which could occur if the US NFP data pushes the dollar index lower.
The US NFP data will be released at 13:30 BST, and the forecast for the number is 390K, while the previous number came in at 431K. The US unemployment rate is also expected to fall further to 3.5%. The previous reading was at 3.6%, and the Average Hourly Earnings m/m is expected to remain the same as the previous reading of 0.4%
The Market Playbook
Now the important part and how this is going to impact the markets. The US ADP number, which came on Wednesday this week, has set a negative for the US NFP data as the US ADP number missed the forecast and indicated that weakness could be creeping in for the US labour market.
The range of US NFP estimates for today’s number is wide, and it is expected to be anywhere between the 250K to the 600K mark. But we think the most important number is 300K. Meanwhile, anything lower than 200K could throw the stock market out of balance and the Fed. That’s because if the number comes below the 200K reading, market players will begin to question the current aggressive stance from the Fed. Remember, the Fed has increased the interest rate by 50 basis points this week and there is no doubt that the Fed wants to carry on with their monetary by front-loading it, and this means that in the coming meeting, we could expect the Fed to raise the interest rate by the same amount. Nonetheless, a soft number will make the Fed question its current monetary policy as the Fed may not want to tighten the monetary policy while economic conditions are deteriorating.
On the flip side, if we see a number that comes better than the market expectations, the Fed will feel comfortable with its monetary policy. They are likely to adopt a more hawkish monetary stance, and an interest rate hike of more than 50 basis points may become likely again. However, the Fed has made it clear that they do not want to increase the interest rate by more than 50 basis points.
The US stock market has seen a major rollercoaster ride this week and traders are getting frustrated as the price action isn’t forming a major trend. For instance, on the Fed day, we saw a strong rally, and yesterday, we saw the US stock indices erasing those gains. However, the important factor to consider is if the US economy is heading towards a recession and stagflation. If today’s economic number gives any indication of that, meaning confirms weakness in the labour market; we could see the sell-off picking up more strength.
The chances are that the US stock market may actually see a bounce back today as the US stock indices are actually oversold, and bargain hunters are only waiting for the US NFP reading to give them the green light before they can jump in.
The precious metal has failed to play the safe-haven role yesterday or a hedge against inflation just like Bitcoin. Both Bitcoin and gold prices came under tremendous selling pressure when the US stock market was melting. This was a clear indication that the current sell-off in the markets is across the board, and there is no safety for investors.
Overall, the shinning metal’s price is going to be highly reactive to the US NFP reading as the number is going to bring wild swings in the dollar index. The fact that the precious metal has not been able to break above the 1,900 price mark is a negative sign for the bulls. In addition to this, the price continues to trade below the 100-day SMA and the 50-day SMA on the daily time frame, which further confirms that bulls are not in the driving seat.
The near-term resistance for the gold price is at 1953, while the support is at 1860.
In the crypto space, Bitcoin’s price is under heavy punishment as the bulls are beaten down by yesterday’s price action. Most of the price action was mainly due to the reason that BTC failed to stay above the 40K price level, and also, a large amount of Bitcoins were moved out of the Coinbase account.
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 correlation with the stock market, and when the stock market moves higher, we also begin to see more bids coming for the Bitcoin price. In the 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.