Friday, February 7, 2020

January’s NonFarm payrolls looks likely to beat economists’ forecasts later today

  • Dollar
  • Euro
  • NonFarm Payrolls
  • US payrolls

Analysts’ Pick: January’s NonFarm payrolls looks likely to beat economists’ forecasts later today

  • ISM’s PMI reports and initial jobless claims signal that reported NonFarm payrolls for January may beat estimates
  • An estimated upside potential of 0.12% for the dollar is expected if NonFarm payrolls is better-than-expected
  • RSI signals a larger potential upside if today’s jobs report misses estimates

Better-than-expected PMI reports from ISM may be a possible signal that today’s jobs report from the Bureau of Labour Statistics in the US may surprise the market. Manufacturing PMI unexpectedly jumped to 50.9 on Monday, besting economists' consensus of 48.5 and recovering from December's level of 47.2. The report also mentioned that overall sentiment in January is moderately positive for short-term growth. Coupled with net positive new orders and net positive production, employment is also likely to pick up in the manufacturing sector in the US.

Headline PMI, new orders and production all shows expansion in January while the employment index starts to recover


Non-manufacturing PMI for January increased 0.5 points from December to 55.5, beating economists' estimates for 55.1. New orders rose in January (56.2 vs 55.3 prior) to exactly the six-month average figure for the sector. Business activity continued to grow faster in January (60.9 vs 57.0 prior), signalling that business sentiment in the sector continues to improve. Employment in the non-manufacturing sectors did grow at a slower rate than December however, implying that today's employment report may show some signs of slower growth as well. But correlation between change in NonFarm payrolls and ISM’s non-manufacturing employment index has started to reverse to negative, implying that it may not be a strong signal that today’s employment report will disappoint.

Non-Manufacturing sectors continues to shine for the US as business sentiment in the sector strengthens


ADP employment report contradicts the ISM's non-manufacturing PMI report's employment index however, with private payrolls surging to 291,000 in January from 202,000 in December, besting the consensus of 157,000. While ADP's employment report is usually not indicative of the BLS' employment report, the increase from December may be a directional indication that BLS' change in NonFarm payrolls may increase from December as well, which is in line with economists' forecasts.

ADP Employment change surged past the top end of economists’ forecasts for January


The four-week moving average initial jobless claims' downtrend in January signals that the US labour market is likely to remain strong. The sharp decline from the four-week moving average at the end of December 2019 to end of January 2020 signals that Change in NonFarm Payrolls in December is likely to improve as well.

Correlation between ISM’s non-manufacturing employment index and initial jobless claims signal that NonFarm payrolls is likely to rise in January


There should be some upside potential to the dollar at today's release of employment data by the BLS as a result. Bloomberg's survey of economists' median forecast for change in NonFarm payrolls to grow by 165,000 of roughly implies that financial markets are already pricing in an increase in jobs in January. But we forecast payrolls to rise by roughly 180,000, which may result in a potential upside of approximately 0.12% for the greenback against the euro.

Bloomberg’s survey of economists’ shows estimates for NonFarm payrolls to grow at 165,00 in January


If NonFarm payrolls increases over economists' forecasts as expected, EUR/USD is likely to fall past 1.0974's level to 1.0969's level, i.e. a 0.12% fall in prices. Expect the currency pair to range between 1.0941 to 1.0974 after the announcement as prices start to stabilise.



Effect on EUR/USD


Change in NonFarm Payrolls beat expectations to grow by 180,000

Fall to 1.0969’s level


Change in NonFarm Payrolls miss expectations

Rise to 1.1001’s level

*Source: ADSS

Technical Analysis:


Bears are in possession of the EUR/USD pair and will likely continue to apply pressure on the currency pair ahead of today’s employment report in the US. With strong economic data in the US earlier in the week, EUR/USD has shifted back towards the oversold level of RSI, indicating that a possible trend reversal might be approaching. This means that EUR/USD has a larger upside potential if today’s employment report misses forecasts, possibly rising towards 1.1001’s level. But we expect jobs in the US to grow more-than-expected in January which should give bears the momentum to hit the 23.6% Fibonacci retracement level of 1.0969 and range between 1.0941 and 1.0974 after.

Support: 1.0974 / 1.0960 / 1.0941

Resistance: 1.0992 / 1.1001 / 1.1022

EUR/USD Chart (H4)