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Whattup, forex friends! Now that the dust has settled around the Fed’s policy decision, it’s time to focus on the next monster catalyst for the dollar. I’m talking about the NFP report tomorrow at 1:30 pm GMT, yo!

Here’s what you need to know about this week’s release:

What happened last time?

  • March non-farm payrolls: 196K vs. 175K expected
  • March jobless rate maintains February’s 3.8% rate
  • Average hourly earnings up by 0.1% vs. 0.3% expected
  • February employment change upgraded from 20K to 33K

The economy added a net of 196,000 jobs in March, which is much better than the surprisingly low 20,000 (now adjusted to 33,000) read in February.

The big jump in job creation pushed the dollar higher during the release. And why not? Traders who fretted over February’s low numbers were assured that Uncle Sam’s job market hasn’t peaked after all.

The dollar’s intraday rally lost momentum, however, as soon as traders paid closer attention to the details.

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

Labor force participation rate dipped 0.2% to 63.0%, which hints at the unemployment rate keeping its ratio partly due to laborers leaving the workforce.

And then there’s the tepid wage growth, which came in at 0.1% when analysts had expected a 0.3% increase after February’s 0.4% uptick. A 0.1% increase in overall wages? Not exactly the formula for a strong GDP…

What are traders expecting this time?

  • April’s nonfarm payrolls to slip back from 196K to 185K
  • April unemployment rate to hold steady at 3.8%
  • Average hourly earnings to rise by 0.3%

Market players are expecting non-farm payrolls to take a chill pill and slip from 196K to 185K in April. They also see a faster wage growth (0.3% this time) and the jobless rate maintaining its 3.8% reading.

Should we really expect a slightly lower headline NFP this week? Let’s look at some leading indicators:

The employment component of ISM’s manufacturing PMI slipped by another 5.1% to 52.4 in April as troubles over retention and skilled labor sourcing dragged on production.

Markit’s reports echo the bearish tone. The services PMI noted that service providers downgrading their output expectations point to “slower rise in employment.

Meanwhile, the manufacturing PMI straight up mentioned that its “employment index is indicative of non-farm payrolls growing by 130,000 in April.” It’s not bad, but it’s also not 185,000.

Last but not least on this week’s list is also the most optimistic. The ADP report reflected a net addition of 275,000 in non-farm private sector employment, higher than the expected 180,000 figure and the highest since July 2018.

Don’t forget that details of the NFP report also matter to traders. As we can see below, April tends to be a stronger month for the headline NFP numbers.

Headline April NFP in the last 10 years
Headline April NFP in the last 10 years

But traders also tend to overestimate the strength of wage growth this time of the year. So while we could see an upside surprise for headline non-farm payrolls, history also hints at a possible downside surprise for wage growth.

April wage growth in the last 10 years
April wage growth in the last 10 years

Which element of this week’s release will traders focus on? In his presser, yesterday Fed head honcho Powell downplayed Uncle Sam’s weak inflation and dismissed recent weaknesses in consumer spending and business spending as “transitory.”

If job creation and/or wage growth prints significantly lower than what analysts are expecting, then we might see the dollar lose some of its shine this week.

But if we see upside surprises in closely-watched data points, then we could see the dollar dominate its counterparts for another day.