Nonfarm Payrolls Preview: US Employment Sector to Keep on Suffering

With the tumultuous start of the new year, the US is due to publish its monthly employment report (NFP) today, Friday. The US Nonfarm Payrolls report for December is expected to show only 71,000 new jobs added, despite the unemployment rate to remain at 6.7% with an hourly wage expected to rise by 0.2%.

The NFP report had a big impact on the markets, but it began to lose its power in influencing the financial markets, the reason was initially because the sector enjoyed good figures but when a pandemic happened, the bad figures were already widely expected. The markets are witnessing some recovery due to Vaccine hopes, in addition to massive stimulus from governments and central banks, all of this supports the demand for riskier assets at the expense of the US currency.

The US dollar was strong in general, but it was still far from the upside, trading near its lowest levels in several months against most majors, while US indices continued to rise, reaching record highs, and the Dow Jones Industrial Average crossed 31,000 for the first time ever, and the S&P reached 3750.

The US dollar may see more gains in the near term, and traders may return to risk aversion if the US Nonfarm Payrolls report comes out worse than expected.

• The ISM Non-Manufacturing PMI Employment component dipped into contraction, falling to 48.2 from 51.5 last month.
• The ISM Manufacturing PMI Employment component bounced back into growth territory, rising to 51.5 from 48.4 last month.
• The ADP Employment report showed an outright contraction of –123k jobs in December, a steep drop from last month’s 304K reading.
• Finally, the 4-week moving average of initial unemployment claims rose to 837k, up nearly 100k new unemployed Americans from last month’s trough reading of 740k.

Scenarios for the EUR/USD

The EUR/USD pair is little changed today ahead of the important nonfarm payroll (NFP) numbers from the United States. The EURUSD is trading at 1.2260, which is a few pips above yesterday’s low of 1.2235.

Looking at the 4-hour chart, we see that the EUR/USD pair is a few pips above the bottom line of the ascending channel, and a break below that channel is a sign of a reversal with the RSI indicator in a downward direction.

Therefore, the two possible scenarios today are that the pair may rebound once again as traders start targeting the upper side of the channel. The second scenario is for the pair to breach below the support as the bears target the next support at 1.2200.