Nonfarm Payrolls Preview: New year, old data

US economy expected to have added 164K new jobs in December.
Political headlines will probably continue to overshadow fundamental figures.
US Dollar retaining its bullish dominance ahead of the release of the key report.

Valeria Bednarik FXStreet

The 2020 macroeconomic calendar will kick-start with December employment figures, the first relevant piece of data to be out this year. However, the market can’t be any less concerned about fundamentals.

Relief news related to the trade war between the US and China, as both countries are set to sign phase one of the trade deal next week, were overshadowed by the escalating conflict in the Middle-East. US President Trump ordered the killing of an Iranian Commander, while Tehran responded by launching missiles on US military facilities on Iraq. The conflict deescalated afterwards, although investors remain on there toes and financial assets are extremely sensitive to risk-related headlines, which can easily overshadow macro data.

Anyway, and back to employment figures, the US economy is expected to have added 164K new jobs in December, after gaining 226K positions in November. The unemployment rate is seen unchanged at 3.5%, as well as the participation rate is foreseen at 63.2%. Average Hourly Earnings are seen up by 0.3% MoM and by 3.1% YoY, pretty much unchanged when compared to the previous month.

Leading indicators providing positive signals

For a change, leading indicators ahead of the Nonfarm Payroll´s release are providing encouraging signs. The country added 266K jobs in the previous month, while the number of layoffs in December fell to 32.8K from 44.6K previously. Furthermore, the University of Michigan Consumer Confidence Index bounced at the end of the year to 99.3.

The ISM PMI reports offered discouraging signals, as the employment sub-component of the Non-Manufacturing index was slightly lower when compared to the previous month, down to 55.2 from 55.5. The employment sub-component of the Manufacturing PMI fell into contraction territory to 45.1.

US jobs report pre-release checklist – Dec 6th, 2019

Previous Non-Farm Payrolls	Positive	November's 266k job growth was the biggest in the last 10 months, triggering a meaningful +2.57 deviation.
Challenger Job Cuts	Positive	The number of corporate layoffs went down in December to 32.843K from 44.6K in November.
Initial Jobless Claims	Positive	The 4-week moving average for the number of first-time employment claimants went down from 233.5K to 224K, a positive development in the last month.
Continuing Jobless Claims	Negative	The number of individuals currently receiving unemployment benefits has risen in three of the last five weeks, with four consecutive worse-than-expected releases.
ISM Non-Manufacturing PMI	Neutral	Employment sub-component in the ISM Non-Manufacturing PMI retraced a bit in December, from 55.5 to 55.2, still way into expansion territory.
ISM Manufacturing PMI	Negative	Employment sub-component in the ISM Manufacturing PMI disappointed for the fourth month in a row, printing a modest 45.1, way into contraction territory.
University of Michigan Consumer Confidence Index	Positive	UMich consumer survey rose to 99.3 in December, very close to its multi-year highs.
Conference Board Consumer Confidence Index	Neutral	CB consumer survey showed a small retracement from 126.8 to 126.5 in December, keeping its 4-month range between 125 and 127 levels.
ADP Employment Report	Positive	The leading indicator most correlated to the NFP printed an encouraging 202k job gain for December, a 7-month high.
JOLTS Job Openings	Positive	Job openings rose to 7.267 million in October, just the second month showing a positive trend within the last seven.

Dollar’s possible reaction to different scenarios

As long as there are no risk-related headers, and given that the dollar has the market’s favour. An upbeat report will likely trigger gains across the board. Also, an upbeat report will likely underpin equities, which means that the USD/JPY pair may be the best performer. A negative outcome, on the other hand, could push the pair back lower, particularly if it remains below 109.70.

The Australian dollar is among the weakest currencies, which means that it will tend to follow the same behaviour as the USD/JPY, despite rising equities tend to support the greenback.

The GBP/USD pair, on the other hand, is Brexit-dependent, and will probably have a less relevant reaction to the report.

The EUR/USD pair is quite a case. It has been trading within well-limited intraday ranges for months, and it seems unlikely that the NFP report could break the stalemate situation. For sure, reading above expected would push the pair lower, with 1.1065 being the most relevant support and bearish target. The employment report needs to be extremely disappointing to push the pair back toward the 1.1200 price zone.

Author

Valeria Bednarik

FXStreet

Valeria Bednarik was born and lives in Buenos Aires, Argentina. Her passion for math and numbers pushed her into studying economics in her younger years.

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