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Haven’t had enough of trading the dollar this week?

If you’re looking for more pips, then you might want to consider trading the U.S. non-farm payrolls (NFP) release tomorrow at 1:30 pm GMT!

What happened last time?

  • December NFP up by 145K vs. 164K expected
  • December unemployment rate held steady at 3.5%
  • December average hourly earnings up by 0.1% vs. 0.3% forecast
  • November NFP reading downgraded from 266K to 256K
  • October NFP revised lower from 156K to 152K

While the jobless rate remained at its 2019 low, both the headline NFP and wage growth numbers also missed analysts’ expectations. What’s more, November AND October’s NFP numbers were revised lower!

USD 15-Minute Forex Charts
USD 15-Minute Forex Charts

It was a weak report all around and dollar bears did not hesitate to show it. Fortunately for the bulls, the weak release was not enough to erase most of the dollar’s gains from the fading U.S.-Iran conflict.

What are traders expecting this time?

  • January headline NFP to improve from 145K to 153K
  • January unemployment rate to remain at a 50-year low of 3.5%
  • January average hourly earnings to accelerate from 0.1% to 0.3%

With NFP only expected to make minimal changes and jobless rate seen going steady, all eyes will likely turn to wage growth this month.

Boeing halting its 737 Max aircraft production should drag it lower but the U.S.-China trade deal and the Fed’s recent report of “labor shortages across skill levels” could lead to higher wages in January.

What are leading indicators suggesting?

Results are pretty mixed, but it’s lookin’ good for wage growth.

Markit’s manufacturing PMI noted that falling exports and output growth have caused a pull-back on hiring in January.

The employment component of ISM’s manufacturing PMI contracted for a sixth month but at a slower pace in January. Historically, ISM’s levels are consistent with 15,000 monthly job losses.

ISM’s non-manufacturing PMI is a bit more positive. Though it dipped by 1.7% in January, the report also noted the “dramatic workforce shortage” and the need for “filling open positions due to new orders.”

The biggest surprise for the week has been the ADP report, which showed private sector jobs rising by 291,000 when markets only saw a 155,000 increase. That’s the biggest job growth since May 2015, yo!

Last but not the least is the POTUS himself, who tweeted about “very good economic news” and “JOBS, JOBS, JOBS!” on a day when there’s no major economic data on tap. Did Trump accidentally tweet about a report that he got in advance? We’ll know on Friday!

How might the dollar react?

We know that Fed members are not too impressed with inflation and have recently downgraded the rise in household spending from “strong” to “moderate.”

Meanwhile, Coronavirus concerns are not on January’s labor data. Remember that a chunk of employment comes from hotels, transport, eating out, and other public recreational services so services and hiring activity (and employment) could take a hit in February.

Unless we see a decent acceleration in wage growth, then some traders can continue to price in a potential Fed rate cut in 2020 even though its latest dot plot chart showed no rate changes this year.

If wages come in as strong as employment in January, however, then we could see the dollar extend its intraweek gains against most of its counterparts.