USDJPY gains before NFP 🔔

🔎 Key US labor market report at 1:30 PM GMT

Today, investors will receive the November US labor market report. At 1:30 PM GMT, we will learn the current state of the US economy. This will be the last important jobs report before the Fed’s December 18 decision.

What to Expect from the Data?

• Bloomberg Economics expects a November non-farm payroll increase of 182,000 jobs, slightly below the consensus forecast of 218,000.

• October data will likely be revised upward from 12,000 to over 50,000 jobs, but underlying job growth remains weak.

• The weak October reading, partly attributed to hurricanes, and the disappointing November rebound suggest deeper cracks in the labor market.

• Most sectors are expected to show improvement compared to the October data, except for the leisure and hospitality sector, where the rebound may be weaker than anticipated.

• A large increase in the labor force (estimates as high as +389,000) is expected to push the unemployment rate higher. The current average points to 4.15%, with a lower and upper bound at 4.0–4.3%.

• The latest Quarterly Census of Employment and Wages (QCEW) report suggests that from the third quarter of 2023 to the first half of 2024, jobs reports may have overstated the pace of growth by about 100,000 jobs per month. Assuming similar patterns for the second half of 2024 (the report is not yet published), it can be concluded that current data are also significantly inflated and that the labor market is not as strong as it might seem.

• The assumption of an equally weak QCEW report for the current half of the year could be supported by the rising number of bankruptcies among small and medium-sized enterprises.

• The six-month average of non-farm payrolls currently stands at 133,000. After adjusting for this potential overstatement, the actual rate of job growth may be as low as around 30,000 jobs per month, which is insufficient to stabilize the unemployment rate.

• While the November employment report will likely continue to support a December interest rate cut by the Fed, next week’s November CPI inflation report will influence the final decision.

The standard deviation of today’s NFP data is around 35,000, which means that readings falling within this range from the average may be treated by the market as being within expectations, thereby limiting overall market volatility. Source: Bloomberg Financial LP

Recently, central bankers’ comments have become slightly more hawkish. Powell has repeatedly mentioned that the U.S. economy is doing well, which means the Fed does not need to rush into lowering interest rates. Despite these comments, the S&P 500 index continues its strong upward trend. Source: Bloomberg Financial LP

At the moment—before the release of the NFP data—the market expects that the Fed will cut interest rates to 4.5% on December 18 of this year with a 68% probability. Source: Bloomberg Financial LP

USDJPY (D1 interval)

The USDJPY pair is gaining 0.40% ahead of the U.S. labor market report. The currency pair is holding at a key support level above 150 JPY per USD. Any surprise in the NFP data could trigger a significant spike in volatility for this pair. In the event of weaker-than-expected data, a sharp weakening of the dollar cannot be ruled out. As a result, we may see the USDJPY pair break through the support zone below the 150 level and continue moving downward.

Source: xStation 5