Market alert: What to expect from the NFP report?

The US NFP report is always closely watched by traders and this time it will be even more scrutinized after the report for February disappointed. US indices and US dollar are the markets to respond the most directly to the report.  In this analysis we outline what to expect from the report.

Summary:

  • Traders anxious after a weak February NFP report and disappointing ADP report for March
  • US indices and the dollar still close to 2019 highs
  • The report will be released on Friday, 1:30pm GMT

Can the NFP report disappoint again?

The NFP report in February printed an extremely disappointing result of just 20k of new employment – the least in 17 months. However, it followed 4 months of strong employment growth so now investors want to know if it was just a one-off low or a start of something more dangerous. Our analysis suggests that employment should grow at a decent pace – at least for now. Over the past 6 years there were only 5 months when the US employment increased by less than 100k (according to the first estimate) – not counting February 2019. In each case employment growth rebounded strongly in the following month: average employment increase was 207k. More importantly, although the ADP report disappointed with employment increase of just 129k, employment components in ISM surveys pointed to the strongest growth in 3 months. Obviously, there is a lot of volatility in NFP reports but the above suggests that employment in March could have grown by 150-200k. That does not mean the US economy is not slowing, but employment is usually a lagging indicator and may hold firm for some time even if the economy deteriorates.

ADP disappointed but the ISM indices suggest strong employment. Source: Macrobond, XTB Research

US500 still close to 2019 highs

The US indices have largely ignored weaker data so far. The index is overbought but that fact alone did not stop the rally in the past. A hammer candle has been the most credible signal for the bulls this year as it signaled the end to corrections but a strong reversal pattern is yet to appear. The key support is at 2815 points and the key resistance is at the all-time highs of 2947 points. Source: xStation5

Reversal candle on USDIDX

The US dollar holds up surprisingly well, partly due to weak economic data in Europe. The USDIDX (US dollar index) remains in an upward channel but in this case there is a reversal pattern – confirmed falling start formation. The key support is at 95.17 while the resistance is at the highs of 97.60. Source: xStation5

 

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