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It’s NFP week y’all! If you’re planning on grabbing some pips off the U.S. jobs report due on Friday, read on and start prepping.

What happened last time?

  • May non-farm payrolls at 75K vs. 177K consensus
  • May unemployment rate at 3.6% as expected
  • May average hourly earnings up 0.2% vs. 0.3% forecast, 0.2% previous
  • May labor force participation rate unchanged at 62.8%
  • April NFP reading downgraded from 263K to 224K

Uncle Sam printed a disappointing May NFP figure of 75K, less than half the expected 177K increase. This was also significantly weaker compared to the earlier 224K read, which was already a downgrade from the initially released 263K figure. Ouch!

Meanwhile, the unemployment rate held steady at 3.6% as expected while the labor force participation rate was also unchanged at 62.8%. Monthly wage growth remained moderate with a 0.2% uptick in May versus the projected 0.3% gain. This brought the year-over-year reading from 3.2% in April to just 3.1% the following month.

Analysts were quick to pin the blame on trade tensions as businesses likely hit the brakes on hiring and wages in anticipation of weaker demand down the line. Of course, Fed rate cut speculations also picked up then.

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

With that, it’s no surprise that the Greenback dropped like a rock after the report was released. The U.S. currency fell sharply across the board before crawling slowly higher against some counterparts while extending its slide against the Loonie and Kiwi for the rest of the session.

What are traders expecting this time?

  • June non-farm payrolls to come in at 164K
  • June unemployment rate to hold steady at 3.6%
  • June average hourly earnings to advance from 0.2% to 0.3%

Market watchers are expecting a bit of a rebound in hiring for June at 164K, more than double the earlier month’s gain, while the jobless rate is still projected to stand pat at 3.6%. A slight uptick in wages is expected as well.

Here’s what leading indicators are hinting at:

The June ISM manufacturing PMI dipped from 52.1 to 51.7 versus the projected 51.3 figure, with the employment component rising from 53.7 to 54.5.

The non-manufacturing version of the report also came in weaker than expected as the reading fell from 56.9 to 55.1 versus the projected 56.1 figure. The jobs component, in particular, slipped from 58.1 to 55.0 to reflect a slower pace of expansion.

On top of that, the ADP non-farm employment report for the same month fell short of estimates at 102K versus 140K, but this was significantly stronger than the earlier 41K gain.

While the ADP figure doesn’t exactly hit the nail on the head when it comes to predicting the actual NFP reading, it can more or less indicate whether or not the results can meet expectations.

As it is, market participants are already pricing in a Fed interest rate cut before the year ends, especially since this dovish tilt was apparent in the latest FOMC statement. This suggests that another disappointing NFP result could seal the deal for a 0.25% cut and possibly one more!

On the flip side, a strong upside surprise could be enough to soothe easing expectations and give the dollar some relief. In any case, be mindful of additional volatility during the release and make sure you practice proper risk management when trading the news.