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US Jobs Up Next

The main focus for markets today is of course the latest round of US labor data. The unexpected strength in the January NFP, 517k vs 185k expected, along with the unemployment rate falling back to 1960’s lows of 3.4% helped fuel a significant shift in sentiment last month. On the back of the data, traders began mulling a potentially more hawkish outlook from the Fed. With the US economy holding up better than expected, as evidenced by further data since those readings (retail sales, GDP PMIs) and with inflation having spiked higher in January, the market has become increasingly expectant that the Fed will either step up the pace of its tightening or push with rate hikes for longer this year.
 

Powell Stokes Hawkish Expectations…

This outlook was confirmed this week in comments made by Fed chairman Powell. Speaking at the Senate Banking Committee, Powell warned Congress that the Fed would likely need to raise rates faster and/or further than previously thought, in light of unexpected economic strength. These comments fuelled a pricing switch for the March FOMC in favor of a larger .5% hike, sending USD and yields higher consequently.
 

…Then Fuels Uncertainty

However, in subsequent remarks, Powell was seen pushing back against the idea that a larger March hike is a done deal and instead said that the Fed will be considering incoming data ahead of the meeting when deciding how to move on rates. With that in mind, today’s jobs data will be seen as crucial to determining whether the Fed hikes by a larger or smaller amount.
 

Today’s Forecasts

Looking at today’s forecasts, the market is looking for the NFP to come in at 206k, down from 517k prior. The unemployment rate is forecast to come in unchanged at 3.4% with wages growth forecast to remain unchanged at 0.3%. Despite marking a drop from the prior month, provided data comes in at forecasts or better, this should keep the current hawkish Fed/ bullish USD view intact, leading USD higher into next week’s inflation data.
 

Technical Views

AUDUSD

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The sell-off in AUDUSD has seen the market breaking down through several support levels as the reversal lower continues. Price is currently stalled ahead of the .6535 level. However, with sentiment heavy on the back of recent weeks of selling, the pair is vulnerable to further losses should today’s jobs data send USD higher. A break of .6535 will therefore open the way for a move down to .6271 next. 

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