GBP Pops On BoE, Will USDJPY Hit 106 On NFP?

Investors have been bidding up the US dollar all week and now they are wondering if Friday’s non-farm payrolls report could drive EUR/USD to fresh 2 month lows or USD/JPY above 106.
NFPs are the most important piece of data for the US this week but over the past year, we’ve seen a diminishing impact on currencies. That mostly had to do with vaccine optimism and how it led investors to shrug off weaker numbers. However this month, non-farm payrolls are expected to improve with job growth returning. In December, 140,000 jobs were lost and tomorrow, US companies are expected to restore 50K jobs. As illustrated by the details below, there are many reasons to expect a stronger release that should encourage further gains in the greenback.

10 and one 10 us dollar bill

Image Source: Unsplash

Today’s jobless claims report showed the 4-week moving average dropping to its lowest level in 2 months and continuing claims at the fewest since March. The employment component of the manufacturing and service sector ISMs returned to expansionary mode last month as ADP reported a sharp rise in private payrolls. Consumer confidence was mixed with the conference board reporting improvement and the University of Michigan reporting deterioration. Still, there’s enough reasons to believe that Non-Farm Payrolls will rise more than 50K but will that be enough?

Typically when data validates market sentiment the impact on the market can be more significant. In this case, the dollar could respond particularly well to a better than expected NFP report. It won’t take much for EUR/USD to fall to fresh lows and possibly test 1.19 but USD/JPY moves more slowly and 106 may be a challenge to reach with the 200-day SMA and November high converging near 105.60.

Arguments in Favor of Stronger Payrolls

1. ADP Employment Change Rises to +174K vs. -78K in December
2. ISM Non-Manufacturing Employment Index Rises to 55.2 from 48.7
3. ISM Manufacturing Employment Index Rises to 52.6 from 51.7
4. Conference Board Confidence Index Rises to 89.3 from 87.1
5. Four Week Jobless Claims Drops to Lowest Level in 2 Months
6. Continuing Claims Lowest Since March

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