Nonfarm Payrolls Preview: Is the dollar’s fate sealed?

• Risk-off sees moments of pause, but optimism nowhere to be found.
• US employment data won’t be as updated as investors need to make decisions.
• Dollar’s strength against its rivals will continue to depend on coronavirus-related headlines.

It’s a time of crisis. Many are comparing the current global situation with the 2008 financial collapse in terms of the market’s behavior. But it’s worse. Just in the US, the financial aid programs launched by the Federal Reserve are far more aggressive than those from ten years ago. And all of them were launched in March. Other major economies follow the path, also doing as much as they can to palliate the effects of the coronavirus pandemic on the economy.

Pandemic nowhere close to a peak

The illness, however, keeps taking lives worldwide and forcing the world to stall all non-fundamental activity. At this point, one-third of the world’s population is in lockdown. The measure extends into April in most countries, although it’s clear that the situation will take much longer to be resolved.

In this scenario, macroeconomic data has lost its ability to affect currencies, as most figures released as of lately, belong to the pre-crisis era. Numbers from mid-March and on are going to be the ones meant to rock the boat.

The US March Nonfarm Payroll report to be out this Friday, won’t fully reflect the effects of COVID-19 on the economy. April numbers will be a whole different story. That said, the report will likely have a moderate impact on prices, most likely to be overshadowed by sentiment.

Anyway, the US is expected to have lost 100,000 jobs in the month, while the unemployment rate is seen at 3.8% from 3.5% in February. As of wages, Average Hourly Earnings are seen up by 0.2% MoM and by 3.0% YoY.

Taking leading indicators with a pinch of salt

The fact that the previous Nonfarm Payroll report was better than anticipated has lost any value. The other positive factors are an increase in the employment sub-component in the services sector, but it’s from February and JOLTS Job Opening, also old history, as those are from January.

The fresher the data, the worst the scenario. According to the just-released Challenger Job Cut report, the number of corporate layoffs spiked in March to 222.8K. Initial Jobless Claims for the week ended on March 27 soared to 6.648M, up from 3.283 M in the previous week. Meanwhile, consumer confidence-related indexes plummeted to record lows.

Another relevant note: the Nonfarm Payroll report includes data collected up to mid-March, so it could be better than anticipated, as it may not include the wild unemployment numbers seen over the last two weeks. The market may well prefer to ignore these figures.

 

The American currency heads onto the release strengthening against most major rivals. Volatility has been contained these days but seems the result of the doom and gloom leaving investors out of options.

The Sterling Pound is being the most resilient to dollar-related news for quite some time, and it’s back to such behavior, which means GBP/USD may be the less interesting pair to trade.

The EUR/USD pair, on the other hand, is at risk of extending its slump toward the year low at 1.0635. It may not reach it with the NFP release, but it seems unlikely than a discouraging report could be enough to flip the dominant trend.

The Australian dollar seems also poised to continue falling, although the Japanese yen has room to appreciate against its American rival.  Anyway, the most relevant reaction will be that of Wall Street. Equities and yields will lead the way, and none is expected to react to delayed employment data, but rather to the ongoing coronavirus-related sentiment.