Trader, analyst and instructor with a 6-year experience

US NFP: forecasts and trade ideas

  Kira Iukhtenko

The US dollar’s upside has been slowing down since late January. American currency has weakened against the euro, pound, yen and Loonie as of late. The medium-term bullish USD trend will be put to the test on Friday, when the US labor market figures are released.

These days the financial markets question whether the Federal Reserve will hike interest rates in mid-2015: the US economic growth slowed down from 5% to 2.6% in Q4. It is clear that the US authorities will base their decision on the labor market dynamics, that’s why the Friday’s January non-farm payrolls, jobless rate and wage growth figures do really matter. Economists expect NFP to decline from 252K in December to 236K in January. This is still above the psychological waterline of 200K, but far below the November peak of 353K.  

Unemployment rate is expected to have stayed unchanged at 5.6% in January, while the average hourly earnings growth – to have recovered from 0.3%. December wage growth figures surprised the markets to the downside, marking a 0.2% drop (annualized growth of just 1.7%). Rebound of wage gains would return the Fed’s rate hike back to the table and render support to the US dollar. Weak reading will put the USD under a renewed pressure as speculators reduce their bullish bets further.

The long-term US dollar prospects will remain upbeat anyway: the Fed’s policy intentions are clearly contrasting with the other central banks. However, in the medium-term weak Friday’s data could trigger a deeper USD correction. USD/JPY and GBP/USD provide attractive trade opportunities in my view. The 117.00 yen support in USD/JPY could be easily broken on the downbeat figures, while GBP/USD has been testing the $1.5300 resistance as of late. Next bullish targets is seen at $1.5370 and $1.5500.


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