NFP, EUR/USD & Fed Tightening

The new-found optimism in the markets could come to an abrupt end with US payroll data likely to affirm the Fed's case for continued tightening.
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Adding up the numbers

US Non-Farm Payrolls for September are expected to show that the labour market is still "hot", with an excessive number of jobs created. The consensus is for 250K jobs, but some analysts think that as many as 290K were created. The implication is that there is no reason for the Fed to slow its rate hike pace on the job front. That is unless the figures disappoint.

The rate of unemployment is expected to stay steady at 3.7%, with an unchanged participation rate. But, it's worth remembering that last time the unemployment rate ticked up along with the participation rate, in a slight surprise to markets. Average hourly earnings are also expected to grow at the same pace as last month, at 5.2% in the context of inflation at 8.3% (September CPI figures aren't released until later in the month).

Where things are going

The latest BLS report showed that the number of job openings in August decreased by 1.1M, but there were only 308K net job openings. This means the job opening rate dropped to 6.2%, compared to an unemployment rate of 3.7%. This gap has been slowly closing since the start of the year. The sectors that have shed the most jobs have been healthcare and the service industries but recent announcements by large tech companies show the trend is widespread.

Compared to the 10.1M job openings in August, there were 6.0M jobseekers, an increase of 344K compared to the prior month. This was the first large increase in the number of unemployed since January. One of the aspects that traders are likely to look at closely is to see whether the total number of unemployed continues to rise or returns to the downward trajectory.

EUR/USD at 50SMA

Boosted by the MACD divergence, the EUR/USD has recently hit a ceiling at the 50-day average of $0.9971. The 78.6% and 50% Fibonacci clusters of the $0.9950-$1.0765 leg near $1.0120 and $1.0365 are in focus as resistance.

If the 50SMA or the base channel hold firm, the pair might slide back towards the 138.2% Fibonacci extension of $0.9625, with the next target down at $0.9430.

Key takeaways

NFP data is expected to show that the labour market is still "hot", with 250-290K jobs created, implying the Fed should continue its pace unless the figures disappoint, particularly on the unemployment front.

But the gap between decreasing job openings and unemployment is slowly closing. So, traders will be interested on the total number of unemployed and whether it returns to normal or increases.