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What to expect from today's Nonfarm Payrolls?

04 August 2023 143
What to expect from today's Nonfarm Payrolls?

First, let's take a look at the economic data that were published before today's nonfarm payrolls.

 

Firstly, it is Wednesday’s ADP nonfarm employment change report, which was extremely favorable for the labor market in the US.

The forecast value was 189K, but the actual value amounted to 324K. That’s 1.7 times higher than the projected figure. It led to the strengthening of the US dollar during the American session on Wednesday. One should keep in mind that the ADP report is to some extent a precursor to Friday's nonfarm payroll.

 

Secondly, yesterday saw the release of the US initial jobless claims report. The actual figures matched the forecast value. It should be noted that the previous three reports were better than forecast estimates. The labor market showed strength, which provided support for the US currency.

 

What scenarios are possible today with the release of the US nonfarm payrolls data?

 

A retrospective of the previous three months boils down to this: the April and May values showed a surge in employment with the actual figure of 250K and the forecast value of 180K; and the actual figure of 339K with the forecast value of 180K, the June value was only slightly off the forecast.

 

Given that only extreme deviations from the forecast cause high volatility, it could be assumed that if today's actual value is below 150K (with a forecast of 200K), it would indicate weakness in the labor market and lead to a short-term weakening of the US dollar. It suggests that economic growth is slowing down, and there is no need for further tightening of monetary policy.

 

On the other hand, If the actual estimate is above 250K, the economy is growing at its normal pace and there is room for further tightening. It could lead to a sharp (but also short-term) strengthening of the US dollar.

 

The following trading strategy can be suggested:

 

If the actual value of nonfarm payrolls is below 150K — buy EURUSD.

If the actual value of nonfarm payrolls is above 150K — sell EURUSD.

 

The profit or loss should be fixed 4 hours after the data are published.

This content is for informational purposes only and is not intended to be investing advice.

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