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Greetings, forex buddies! Another NFP Friday is fast approaching, so it’s time for another edition of my Forex Trading Guide to help y’all get up to speed on what happened last time and what we can expect for the upcoming NFP report.

Update (3:30 pm GMT): ISM’s non-manufacturing PMI was taken into account and the forecast is now skewed towards a likely slowdown and a possible downside surprise rather than an upside surprise when ISM’s non-manufacturing PMI was still not a factor.

What happened last time?

  • Non-farm payrolls: 151 vs. 190K expected, 262K previous
  • Jobless rate: ticked lower to 4.9% vs. steady at 5.0%
  • Average hourly earnings: 0.5% vs. 0.3% expected, 0.0% previous
  • Labor force participation rate: uptick to 62.7% vs. 62.6% previous

If y’all can still recall, I concluded in my Forex Trading Guide for the previous NFP report that “most of the leading indicators are leaning heavily towards a possible slowdown in employment growth, so a lower net increase in jobs is to be expected for the upcoming NFP report.”

Well, my conclusion was pretty accurate since non-farm payrolls only saw a net increase of 151K, which is much lower than the 190K consensus and the previous month’s reading, even though it was downgraded from a net increase of 292K to just 262K. However, a closer look at the report shows that most of the job gains were full-time jobs.

Moreover, the net increase was enough to push the jobless rate lower to 4.9%, which is an eight-year low. Not only that, the labor force participation rate ticked higher to 62.7% from 62.6%, which is a healthy sign that the economy was able to accommodate the influx of workers who joined or rejoined the labor market.

Overall, the NFP report was pretty good as a whole, but it admittedly presented a mixed picture at first glance. As such, the knee-jerk reaction of most forex traders was to dump the Greenback against most of its forex rivals, only to buy it up pretty much across the board later after they have taken a good, hard look at the details of the NFP report.

The likely driver was higher-than-expected wages since it likely enticed interest rate junkies to load up on the Greenback, which is why I also advised y’all to keep an eye on wage growth in my previous Forex Trading Guide.

USD Index: 1-hour Forex Chart
USD Index: 15-minute Forex Chart

What do forex analysts expect?

  • Non-farm payrolls: 195K expected vs. 151K previous
  • Jobless rate: expected to hold steady at 4.9%
  • Average hourly earnings: 0.2% expected vs. 0.5% previous

For this Friday’s NFP report for the February period, economists and forex traders expect non-farm payrolls to increase by 195K. At the same time, the consensus is that the jobless rate will hold steady at 4.9% while wages will only grow by around 0.2%, which is a tad slower than the previous 0.5% increase.

Looking at the currently available labor indicators, Markit’s final manufacturing PMI for February dropped from 52.4 to 51.3, which is the weakest reading since October 2013, with commentary from the report stating that “The latest increase in payroll numbers was only modest, and the weakest recorded since September 2015.”

Next, the final reading for Markit’s services PMI suddenly slumped from 53.2 to a 28-month low of 49.7 in February, which means that the services sector is now contracting for the first time since October 2013. More importantly, the report noted that the “rate of employment growth eased since January.”

Moving on, the ADP report, uh, reported a higher net increase in non-farm employment (214K vs. 185K expected), although the previous reading was downgraded from 205K to 193K.

Finally, ISM’s manufacturing PMI climbed higher from 48.2 to 49.5, but the employment index is still well below the neutral mark at 48.5, but it’s a significant improvement over the previous 45.9 reading. As for ISM’s non-manufacturing PMI, it ticked lower from 53.5 to 53.4, but the employment index drastically slumped from 52.1 to 49.7. This means that employment in non-manufacturing industries is contracting for the first time after 23 consecutive months of growth.

Overall, the available leading indicator is pointing to a possible slowdown in job growth in February. It’s even possible that net employment gains may be much lower than the 151K that was printed in February, especially since non-manufacturing industries saw a contraction in employment.