Friday’s NFP reading to set the scene for noteworthy scenarios

On Friday, when markets are closed worldwide for Easter, the official US jobs report will be released. The increase in nonfarm payrolls for March is anticipated to be 240,000. The trade volume on Friday is probably going to be thin, with volatility spiking around the NFP report. There won’t be much price action before or after the data.

The price of gold interrupted its three-day winning streak, sliding for the second straight day, amid rising safe-haven demand on the US dollar. Expectations of a pause in the Fed’s tightening cycle as early as May were bolstered by yet another batch of dismal US economic data, including the Automatic Data Processing (ADP) Employment Change and ISM Services PMI.

As opposed to the 200K predicted and the 261K previously, the US ADP private sector employment expanded by 145,000 jobs in March. In March, the US ISM Services PMI decreased from 55.1 to 51.2, underperforming the forecast of 54.5. Meanwhile, all of the ISM Services sub-components slowed their pace of expansion. Markets are now pricing in a 53% probability of no rate hike by the Fed in the next meeting.

The latest batch of weak US economic data rekindled recession fears, prompting investors to run for safety in the US dollar while the US Treasury yields tumbled across the curve after the data release on Wednesday. On Tuesday, available positions totaled 9.93 million, a drop of 632,000 from January’s downwardly revised number. Economists were expecting 10.4 million available positions.

The Labor Department reported Tuesday in its monthly Job Openings and Labor Turnover Survey. Job openings fell below 10 million in February for the first time in nearly two years. US Factory Orders dropped by 0.7% in February vs. -0.5% expected, registering the second straight monthly decline.

The awaited and closely watched US Non-Farm Payrolls reading will follow disappointing manufacturing and services sector data from the Institute for Supply Management and private employment figures released Wednesday.

Economists preview the Nonfarm Payrolls release and consider key possible ensuing market scenarios. Stronger-than-expected NFP readings could trigger renewed USD strength. The first scenario entails stronger-than-expected NFP reading that could drive pushback against the dovish drift in Fed’s policy expectations, triggering renewed USD strength in the process.

The likely mixed liquidity conditions could amplify market moves. However, barring shocking data outcomes, economists would look to stick to our strategy of fading US dollar’s strength against the Euro and would wait for next week’s US CPI data before making a more comprehensive assessment.

On the other hand, softer-than-expected or roughly in-line numbers validating the dovish Fed narrative can keep the current soft USD trend in place.

In the unlikely event that the data were to show shockingly weak numbers, featuring a sharply higher unemployment rate and/or an NFP print well below the low end of the analyst forecast range (currently 150,000), broader risk-off price action might complicate the Forex picture and keep US dollar’s weakness more focused in safe haven pairs such as USD/JPY and more mixed elsewhere.

Gold is trading $2007.80 at the time of writing amid a batch of generally weak US data as well as uncertainty about Fed’s next move. The gold market has been influenced by several factors this week, including weak US economic data, the Federal Reserve, the US dollar, and eventually Friday’s key NFP report.

Although gold prices rose above $2,000 due to the surprise oil output cuts by OPEC+ and weak US economic data, some profit-booking and an uptick in the dollar have led to a cool-off in prices.

Investors are looking forward to Friday’s U.S. non-farm payrolls report, which could create a highly volatile session, but gold could bounce back due to continued weak indicators and steady central bank buying.

The upcoming Non-Farm Payrolls reading is expected to follow weak manufacturing and services sector data, reigniting concerns about the risk of a recession. The Federal Reserve is scheduled to meet in May, and the market is divided over whether the central bank will pause or raise rates by another 25 basis points.

Investors are closely monitoring the impact of the Fed’s monetary policy tightening on the economy, with last jobless claims figure that recorded 228,000 and the nonfarm payrolls report providing more clues.