NFP Preview, Potential Price Reaction

It is anticipated that the December NFP report will reveal a higher-than-anticipated number, with headline employment growth possibly falling between 170K and 225K.

Economists and traders anticipate that the US added 168K net new jobs in the report, while average hourly wages increased by 0.3% m/m (3.9% y/y) and the U3 unemployment rate increased to 3.8%. Another strong jobs data might shift the scales closer to a 50/50 result, as the chances of a March rate cut have dropped to 66% from nearly 100% last month.

Traders are optimistic about the Federal Reserve’s potential to cut interest rates soon, with a 2-in-3 chance of a March rate cut. However, the odds have declined from closer to 100% last month, suggesting that another solid jobs report could tip the scales closer to 50/50.

The ISM Services PMI report will be released 90 minutes after the NFP, leaving three leading indicators: the ISM Manufacturing PMI Employment component rose to 48.1, the ADP Employment report showed 164K net new jobs, and the 4-week moving average of initial unemployment claims dropped to 208K.

The leading indicators point to a stronger-than-expected reading in this month’s NFP report, with headline job growth potentially coming in the 175K-225K range, albeit with a bigger band of uncertainty than usual given the current global backdrop. The US dollar index has rebounded over the last week, but the trend remains bearish, especially if the jobs report misses expectations. USD/CAD, which will release two key jobs reports, has seen a sharp bounce to start the new year, alleviating its oversold condition and raising bullish hopes ahead of the NFP report.

Nonfarm payrolls in the US are forecast to increase by 170,000 in December. Gold is likely to react stronger to a disappointing jobs report than an upbeat one. The gold price’s inverse-correlation with NFP surprises weakens slightly by the fourth hour after the release.