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Hey, forex friends! If you’re hoping to catch some pips off dollar pairs this week, you might wanna start prepping for the NFP report due tomorrow at 1:30 pm GMT.

What happened last time?

  • April non-farm payrolls 263K vs. 181K consensus
  • April unemployment rate down from 3.8% to 3.6% vs. 3.8% forecast
  • April labor force participation rate down from 63% to 62.8%
  • April average hourly earnings up by another 0.2% vs. 0.3% forecast
  • March non-farm payrolls downgraded from 196K to 189K

The U.S. economy added a much larger number of jobs than expected in April at 263,000 versus the consensus of a 181,000 gain. This was higher than the average monthly gain of 213,000 over the past 12 months, enough to drive the unemployment rate down from 3.8% to its 49-year low at 3.6%.

However, components of the April jobs report revealed that the participation rate took a 0.2% hit during the month as nearly a half-million workers dropped out of the labor force.

Wage growth was also tepid at 0.2% versus the projected 0.3% increase, which doesn’t exactly bring high hopes for inflation and consumer spending.

To top that off, the previous month’s reading suffered a notable downgrade from 196K to 189K. It’s no surprise that the dollar tanked across the board even with positive headline readings!

USD Forex Pairs 15-min Overlay
Overlay of USD Forex Pairs 15-min Charts

The Greenback finished the week mostly lower against its forex peers, particularly the pound, and even gapped lower against the yen over the weekend. Of course, a lot of this post-NFP action was also affected by trade troubles then.

What are traders expecting this time?

  • May non-farm payrolls to increase by 180K
  • May unemployment rate to hold steady at 3.6%
  • May average hourly earnings to improve from 0.2% to 0.3%

Market watchers aren’t really setting the bar very high for this week’s set of U.S. jobs figures as the consensus is for a 180,000 increase in hiring and no change in the 3.6% unemployment rate.

On the slightly brighter side, the average hourly earnings report could show a bit more wage growth at 0.3% versus the earlier 0.2% uptick.

Here’s what leading indicators are hinting at:

Even though the May ISM manufacturing PMI itself fell short of expectations as it slipped from 52.8 to 52.1, the employment component reflected a stronger pace of growth as the reading advanced from 52.4 to 53.7.

The ISM non-manufacturing PMI turned out stronger than expected in May, climbing from 55.5 to 56.9. The jobs component also reflected an improvement as it jumped from 53.7 to 58.1, showing increased hiring in the services sector.

On the flip side, the ADP non-farm employment change report for May was a major disappointment as it printed a meager 27K gain versus expectations of a 185K increase and the earlier 271K figure. This release confirmed hiring gains in the services sector while indicating declines in goods-producing industries.

Just keep in mind that the ADP figure isn’t really known for hitting the mark when it comes to predicting the NFP outcome, so there’s a chance that this dismal read might be overestimating a jobs slowdown as some analysts pointed out.

Still, weaker than expected NFP data could further undermine Fed tightening hopes, especially with renewed trade tensions also dampening business sentiment and hiring prospects.

On the flip side, stronger than expected readings for employment and wage growth could support the view that the U.S. economy is able to stay resilient. But if the previous release is any indication, traders are paying extra close attention to underlying data and are taking headline readings with a grain of salt.