Lower forecast for January NFP number

  • US Nonfarm Payrolls report is expected to show 185K job gains in January, lowest number in more than two years.

  • US Dollar traders will focus on Average Hourly Earnings data, which declined in December.

  • United States labor market performance seems to be cooling down a bit on cold winter from record-breaking numbers.

The United States Bureau of Labor Statistics (BLS) will issue the Nonfarm Payrolls (NFP) data on Friday, February 3rd at 13.30 GMT. The market expects that the US economy added 185K jobs throughout January. After the US ADP private sector payrolls plummeted to 106K in January, unexpectedly falling short of the 178K consensus and lower than the 253K from the previous month, a worse-than-expected number seems to be on the cards. Lower US employment figures could extend the US Dollar (USD) slide.

The US Dollar has been meandering near 10-month lows against its major rivals, as markets read the latest comments by Federal Reserve (Fed) Chairman Jerome Powell as largely dovish.

Powell referred repeatedly during a news conference to the “disinflationary” process that now appeared to be underway, which markets view as the Fed could be turning a corner on its tightening cycle. While that justifies a weaker USD, the move may have gone too far. This should imply the beckoning of an upside correction in the US Dollar should the Nonfarm Payrolls headline number deliver a positive surprise.

How many jobs will the US economy add to January Nonfarm Payrolls report?

Friday’s United States (US) economic docket highlights the release of the closely-watched US monthly labor market data for January. And, the Nonfarm Payrolls expectations are that the economy added 185K jobs during the reported month, down from the 223K job additions in December. The Unemployment Rate is anticipated to tick slightly higher to 3.6% in January. 

Aside from the headline NFP number, investors will closely examine the Average Hourly Earnings, which could offer fresh insight into the possibility of any further rise in inflationary pressures. The US Average Hourly Earnings are expected to print 4.9% YoY in January, up from 4.6% reported in December while on a monthly basis, the wage growth is seen unchanged at 0.3% in the reported period.

The CIBC analyst team does not expect market fireworks from the US job report release: “Total hiring likely slowed to a 170K pace in January. That’s still a healthy pace of job growth, and the recent softening in the prime-age labor force participation rate leaves room for solid hiring without putting more upwards pressure on wages. Assuming an increase in participation, the unemployment rate could have increased to 3.6%, while the outsized gain in the hiring on the household survey that was seen in December isn’t likely to have been repeated in January. We’re roughly in line with the consensus expectation, suggesting limited market reaction.”

How will EUR/USD react to the Nonfarm Payrolls release?

The Nonfarm Payrolls report is scheduled for release at 13:30 GMT on Friday, February 3. As the dust settles over the dovish Federal Reserve and the European Central Bank monetary policy decisions, the EUR/USD pair has entered a phase of downside consolidation near the 1.0900 threshold. Weaker US employment details could trigger a fresh leg down in the USD and provide an additional boost to the main currency pair.

In contrast, any positive surprise could offer legs to the ongoing USD recovery but any upside could be limited amid increased expectations that the US central bank will pause its rate-hiking cycle. This is what revives the US Dollar bears and suggests that the path of least resistance for the EUR/USD pair is to the upside. 

Dhwani Mehta, Analyst at FXStreet, offers a brief technical overview and outlines important technical levels to trade the EUR/USD pair: “With a potential bullish crossover on the daily chart, represented by the bullish 100-Daily Moving Average (DMA) piercing the flattish 200DMA from below, the upside appears more compelling for the EUR/USD pair. The 14-day Relative Strength Index (RSI) is holding comfortably above the midline, keeping buyers hopeful. The pair needs to recapture the 1.0950 psychological barrier to resume the uptrend toward the 1.1000 round figure. 

“On the downside, the EUR/USD pair could extend the correction toward the bullish 21DMA at 1.0837 should the previous day’s low fail to offer support. Further south, the January 31 low at 1.0802 will come to the rescue of the Euro buyers, ” Dhwani adds further.

Nonfarm Payrolls related content

About the Nonfarm Payrolls report

The US Bureau of Labor Statistics releases new employment data on the first Friday of each month through the Nonfarm Payrolls report. The headline number of the report indicates the change in the number of employees in the United States economy, including both private-sector and public-sector jobs.

Monthly payroll changes are notoriously evaluated by the markets, particularly by forex, stocks traders, but also impact other assets classes like commodities or cryptocurrencies, due to their strong significance for the economic policy decisions made by the US Federal Reserve.

Normally, a positive reading is seen as bullish for the US Dollar, while a negative reading is viewed as bearish for the USD. However, reviews of the previous month’s reports and related data released at the same time like the Unemployment Rate are just as important in gauging how investors feel about the currency.