On Friday morning, the Bureau of Labor Statistics will release the Non-Farm payrolls (NFP) and the unemployment rate data.
Analysts expect the unemployment rate to remain steady at 4.1% and an NFP reading of 200K. In November, the bureau reported an NFP figure of 261K while in September, the bureau reported a job loss figure of 33K. This came immediately after the 5 major hurricanes that hit the country.
On Wednesday, payroll company released its reading of the Employment change. Its figures showed that in the previous month, the U.S. added 190K jobs against the expected figures of 185K. The reading showed increased activity in the manufacturing industry which added 40,000 jobs. The service-providing industry was the biggest winner, adding more than 155K people while the information technology and construction saw job losses of 13,000 and 4,000 respectively.
As they always do, investors will pay close attention to the NFP and the unemployment rate. This is because job creation is the key stimulant for consumer spending. This time however, investors will pay a closer attention to wage growth which they expect to grow by 0.3%.
In November, there was no wage growth while in October, wages grew by 0.5%. They will also focus on productivity growth. As the chart below shows, the distortion between the hourly output rate and the real compensation has been widening. In economic theory, the two should be inseparable.
In all, a surprise surge in NFP and the unemployment rate – say 3.9% – and an improvement in wage growth will excite the market and raise the expectations of more rate hikes in 2018. However, if these numbers disappoint, it won’t change the facts that the Federal reserve will raise rates by between 100 and 150 bps on Wednesday next week.
This week, the dollar has been strong following last week’s passage of the tax bill by Republican senators. As of this writing, it has gained about 0.69% against the Euro. The Euro has been affected by the Brexit negotiations which appear to be moving in the wrong direction. Equally, the dollar has gained about 0.5% against pound which has hammered by the problems facing Theresa May.
A huge surprise in the data released tomorrow may lead the EURUSD pair to either the 1.1709 level which it reached in November. It could even move to the 1.555 level.
However, the data will be released in a busy day in Washington. As you remember, three months ago, Trump made a deal with Chuck & Nancy to raise the debt ceiling. The deal is expected to expire tomorrow and if no deal will be made by Trump and the democrats, the government will run out of money leading to a shut down. Of course, such a shut down will not be good news to the dollar which could struggle moving higher despite the reading of the economic data.
The dollar might not collapse in case of a government shutdown, but, it may be subdued if the data fails to meet the analysts’ forecasts. Still, a combination of two events – Trump deal with democrats and a surprise reading of employment data – could lead the EUR/USD pair to the 1.555 level I mentioned above. A disappoint in both could see the pair move up to the 1.209 level.
In the that a government shut down happens but the data surprises, it may create a buying opportunity for dollar bulls.