Forex Trading Guide: U.S. January Jobs Report

If you’re hoping to trade the news this week, then you gotta look at the upcoming U.S. non-farm payrolls release on Friday’s New York trading session. Here’s a simple forex trading guide for this event.

What’s expected for this report?

For the month of January, analysts are expecting to see a 236K increase in hiring, slightly lower compared to December’s 252K rise. This should be enough to keep the jobless rate steady at 5.6% for now.

Early labor indicators seem to be hinting at a downside surprise, as the ADP non-farm employment change reading fell short of expectations and printed a mere 213K gain. The labor component of the ISM manufacturing PMI edged down from 56 to 54.1 while the non-manufacturing survey showed a decline from 55.7 to 51.6 in its employment index, also suggesting that hiring may have slowed down in January.

What happened last time?

Before figuring out how the dollar could behave against its forex counterparts during the NFP release, let’s first take a look at how the currency fared last time. The December report posted stronger than expected results, with the employment change figure coming in at 252K versus the projected 241K figure and the jobless rate improving from 5.8% to 5.6%.

Digging beneath the surface, however, reveals that labor force participation declined significantly during the period. This means that more Americans have exited the jobs market and given up looking for work. Wage growth was also weak, as average earnings indicated a 0.2% decline for the month.

How did EUR/USD react?

EUR/USD 15-min Forex Chart

EUR/USD 15-min Forex Chart

As you can see from EUR/USD’s price action during the release, the U.S. dollar had an immediate positive reaction to the stronger than expected headline figures. These gains were quickly erased though, as forex traders zoomed in on the weak spots of the labor report.

A similar reaction might be seen for the upcoming NFP release, especially if the actual readings surprise to the upside once more. Further weakness in underlying data could drive the U.S. dollar much lower against its forex rivals, as this might lead market participants to doubt that the Fed could afford to hike interest rates this year.

Do you think the NFP report will post another strong reading? Or will the oil industry slump start hurting hiring this time?