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Trader, analyst and instructor with a 6-year experience

What to expect from the US NFP?

FXBAZOOKA.com  -  Exhausted by the yesterday’s ECB-related move, currency traders await the US labor market data on Friday (12:30 GMT). Consensus forecasts are upbeat for all the 3 releases:

Key US releases (Sept. 5)

The ECB easing announcement made it very clear that monetary policy divergence between the euro zone and the United States is increasing. The Federal Reserve has a clear intention to finish the QE in October and to proceed to raising interest rates afterwards. Of course, the terms are important, but in this case it is the direction that matters: the Fed is hawkish, while Yellen is dovish. In our view, US NFP above 200K will be enough to confirm: US economic recovery remains on track and the Fed's tightening strategy is adequate to the market conditions. 

Chart. NFP dynamics in 2013-2014

NFP above the 226K consensus will clearly push the US dollar a little higher. but the upside seems to be limited today. However, the figure below forecast will likely trigger a short-lived, but potentially deep USD correction. The greenback is clearly overbought after the yesterday's rally.

Chart. US dollar index (Bloomberg)

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