Strong NFP Numbers Could Delay Fed Easing

Following solid economic data seen earlier this week, market participants anticipate the upcoming employment report with a degree of trepidation. Specifically, there are concerns that the figures may justify a delay in the Fed's easing.​

Easing Jobs Market, Easing Rates?

Data released this week has generally exceeded expectations, with the ISM Manufacturing PMI above forecasts, job openings increasing according to the JOLTS report and ADP surpassing forecasts. However, the latter has lost its reputation as a reliable predictor of non-farm payrolls (NFP). Consequently, the dollar has lost its footing recently as the possibility of an interest rate cut in June declines.

Nevertheless, a closer look shows that the labour market may be gradually cooling. As revealed in the prices paid component, price pressures showed a drop to a 4-year low in Manufacturing. Meanwhile, the services sector slowed as well, suggesting moderation in a sector the Fed has been watching closely and is expected to outperform this year. Fed Chair Jerome Powell has consistently stated that the conditions are not yet appropriate to signal near-term easing, but unexpected weakness in employment could prompt a shift in this stance.

What the Figures May Show

Economists expect the employment numbers to fall to 200K jobs in March, down from 275K reported in the month prior. The unemployment rate is also forecast to stay at 3.9%, below structural levels. However, average hourly earnings, a key inflation indicator, is projected to accelerate to 0.3% month-on-month following a mere 0.1% rise. This comes after job openings showed an increase in February, implying that ongoing resilience in labour markets could keep consumers spending and pressure inflation, especially as wages are projected to keep rising faster than inflation. All of the above could delay the Fed's easing path.​

Meanwhile, Eurozone inflation fell at a faster pace than economists had anticipated in March, fuelling speculation that the ECB will cut rates before the Fed does. However, some members have pushed back on this notion, with the euro rising against the dollar and the notable softness in the US services sector. Strong jobs data could put an end to the recent trend or let it continue instead.

EURUSD Pennant Pattern Complete?

The EUR/USD pair appears set for further movement after potentially forming a pennant pattern around 1.0725 pending breakout. A convincing move above the upper trendline at approximately 1.09 could support the bullish thesis and usher additional gains towards 1.1139 over the longer term should bulls reclaim 1.098-1.10. However, a reversal under 1.08 could see the recent swing low retested, with downside risks extending to 1.07.

Source: SpreadEx / EURUSD

Key Takeaways

Anticipation is high ahead of the upcoming US employment report, with concerns that the data may signal continued labour market resilience and delay expectations of an interest rate cut by the Fed. While recent economic indicators have exceeded forecasts, pointing to ongoing strength, a closer analysis indicates signs of gradual cooling in both Manufacturing and services. As the jobs figures are predicted to show a slowdown in employment growth and steady unemployment but a stronger-than-expected wage rise, this could keep consumer spending and inflation going. As a result, it could reinforce the Fed's stance that conditions are not yet right for easing, at least in June, supporting the US dollar and ending the recent bullish trend in the EURUSD pair.​