Nonfarm Payroll preview: time for data to back Fed's wording

A volatile week is set to end on a high note, as the US is scheduled to release its monthly employment data. The Nonfarm Payroll report is expected to show that the US economy has added 175K new jobs in January, after adding 148K in December, while the unemployment rate is expected to remain unchanged at 4.1%. The rate has remained at 4.1 percent for the past three months. Wages will get more attention than usual this time after the Fed change its wording on inflation in their latest statement, indicating that yearly inflation "is expected to move up this year and stabilize around the Committee's 2.0% objective over the medium term." Now, is time for data to back up the new wording.

A couple of years ago, when the US Federal Reserve was alone in the tightening path, a word hinting an upcoming rate hike was enough to trigger a dollar's rally, but that changed as solid economic growth is seen worldwide, and more central banks join the tightening path.

Average hourly earnings are estimated to have risen 0.3% MoM and 2.6% YoY, in line with last years' average. Through 2017, the average hourly earnings were up 65 cents, quite low relative  to the economic growth, probably one of the reasons why the dollar remains under pressure despite a hawkish Fed. Sustained growth in wages is what it takes to convince the world that the US economy is close to full employment, as the Fed stated in the previous meeting.

Job's creation is not expected to be a big issue, considering that the ADP report, released earlier this week, showed that the private sector added 234K new jobs in the first month of the year, while December number was revised to 242K from the previous 250K.  

The negative sentiment toward the greenback has begun fading after it plummeted last week to multi-month lows across the board, but does it mean it's over?  As said above, data, particularly inflation-related data, needs to back Fed's wording to actually give the dollar a sustainable impulse.

A key US inflation measured has slowed in December according to the latest release, as the Personal Consumption Expenditures price index, grew just 0.1% in December after November's 0.2$ increase. Yearly basis, PCE inflation resulted at 1.7% from previous 1.9%.  The core PCE has been below Fed's 2% for more than five years. That said, the ongoing dollar´s recovery may be considered corrective.

EUR/USD levels to watch

The EUR/USD pair has rallied from 1.1916 to 1.2536 in January, ending the month around 1.2410, a handful of pips above the 23.6% retracement of the monthly run. This week, the pair bottomed twice around 1.2335, with the 38.2% retracement of the mentioned rally at 1.2300. A weekly close below this last will indicate additional gains for the greenback next week, with 1.2160 becoming a possible target. The immediate resistance area comes as t.12460/80, followed by the multi-year high set at 1.2536. The NFP report has to disappoint big in more than one of its components to see the pair breaking through this last.

Technical readings in the daily chart confirm that the latest retracement is a mere correction, stalling short of suggesting that it will continue. The upward Momentum reversed, but the indicator is losing its downward strength well above its 100 level, while the RSI indicator stands at overbought levels. In the same chart, the 20 DMA maintains its strong bullish slope, now a few pips below the mentioned 38.2% retracement, reinforcing the strength of the support area.