Today is the market players’ most important day of the whole month, as we will see the latest reading of the US NFP data. This economic reading commands the most attention among investors and traders. The economic data set the trading tone for today and the rest of the month. The Fed will watch this data closely, likely influencing their monetary policy decision.
US and European stock futures are trading lower ahead of this data. Traders will 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 strengthened against the Euro, Japanese Yen, British Sterling, and other G10 currencies. Yesterday, we saw the USD/JPY surging to a level that we have not seen since 1998, and the GBP/USD is likely to revisit the Brexit lows while the EUR/USD may continue to fall to 0.98.
The US NFP data will be released at 13:30 BST, and the forecast for the number is 295K, while the previous number came in at 528K. The US unemployment rate is also expected to print the same reading as last month, which was 3.5%. As for the Average Hourly Earnings m/m, the data is expected to come out slightly softer than the previous reading. The forecast is for 0.4%, while last month the number came in at 0.5%
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 broad, and it is expected to be anywhere between the 250K to the 600K mark. But we think the most important number is 370K. 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 been increasing the interest rate aggressively this year, and there is no doubt that the Fed wants to carry on with its monetary by front-loading it. This means that we could expect the Fed to raise the interest rate by pretty much the same amount in the coming meeting.
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, the Fed will feel comfortable with its monetary policy if we see a number that comes better than the market expectations. 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. Several Fed members have already indicated that they are less concerned about tipping the US economy into a recession as its priority is controlling inflation. This has made many traders wonder if the Fed is on a path which could lead them to another terrible policy mistake.
This week, the US stock market has been a significant rollercoaster ride, and traders are getting frustrated as the price action isn’t forming a major trend. The big bounce that we saw for the S&P 500 during the last month has faded to a large extent already, confusing many traders about the direction of the stock market.
Nonetheless, the critical factor to consider is if the US economy is heading towards a recession and stagflation. If today’s economic number indicates that, meaning confirms weakness in the labour market, we could see the sell-off picking up more strength.
The precious metal is struggling to find any bids, and yesterday we saw the prices dipping below the 1,700 price level, mainly due to the strength of the dollar index.
As for today, the shinning metal’s price will be highly reactive to the US NFP reading as the number will 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, the price continues to trade below the 100-day SMA and the 50-day SMA on the daily time frame, confirming that bulls are not in the driving seat.
The near-term resistance for the gold price is at 1740, while the support is at 1660.
In the crypto space, Bitcoin’s price has shown a lot of resilience this week, and it seems like Bitcoin, for the first time in a long time, is doing its own thing. We have not seen a significant meltdown in the Bitcoin price due to the dollar index’s strength or the stock market’s meltdown. This is undoubtedly strange for the Bitcoin price, which has been trading very closely with them.
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 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.