Could the non-farm payroll impression be……BAD?

I say. I shouldn’t even think about it. The possibility of getting a low NFP impression, let alone a negative impression, is unfathomable. But markets seem to be pricing in the possibility that if Friday’s jobs report is bad, the Fed will “pivot” and slow the pace of rate hikes going forward. Giving markets additional hope that the Fed might pivot is that the RBA only raised rates by 25 basis points when markets were expecting a 50 basis point hike. (The RBNZ will be watched closely later. 50 basis points are expected).

Back to NFP report. Take inventory of some data on recent and upcoming jobs:

  • Monday: Horrible employment component of the ISM Manufacturing PMI report
  • Tuesday: Horrible JOLTS Data
  • Wednesday: ADP (which really doesn’t correlate much with the NPD report)
    • ISM PMI non-manufacturing Employment component
  • Thursday: Job cuts at the challengers
    • Initial Claims: Although in print October 1stnote that the 4-week average last week was 207,000, its lowest since May
  • Friday: the non-farm payroll AND the unemployment rate.
    • Note that the unemployment rate doesn’t really matter if there are significant increases or decreases in the labor force, however, Fed officials have referred to it. Therefore, the markets should also watch it.

If Jobs this week continues to be weak, stocks could continue to rise as the US Dollar continues to sell off. However, if the NFP print comes out as expected or better than expected (+250,000), markets could quickly reverse and retrace some of the extreme moves of the past few days.

EUR/USD is one of the currency pairs that has benefited from the prospect of a Fed pivot. It wasn’t until Wednesday of last week that the pair hit a 20-year low at 0.9536. Just 5 trading days later, EUR/USD traded as high as 0.99995. However, the pair is facing psychological resistance at 1.0000.

Source: Tradingview, Pierre X

Over a 240 minute time frame, if EUR/USD continues to move above parity (i.e. jobs data is worse), the next resistance is the trendline upper of the long-term channel near 1.0050. Above, EUR/USD can reach the highs of September 12e near 1.0192 then a strong resistance area near 1.0345/1.0360. However, note that the RSI is in the overbought territory. If resistance holds (i.e. jobs data is better), the first level of support is September 30e highs at 0.9853. Below, EUR/USD may fall back to recent lows at 0.9536 and then to the lower trendline of the longer-term channel near 0.9415.

Source: Tradingview, Pierre X

If the jobs report is better than expected, there is a chance the market will reverse some of the Fed “pivot” it priced in, and stocks and EUR/USD could decline. However, if the NFP print is weaker than expected, there will be a lot of talk about the pivot and the markets could see the current trends in equities and the US Dollar continue!

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