WAGE GROWTH AND PARTICIPATION RATE TO DOMINATE MARKET TODAY
Today, the attention among traders, investors, and policymakers is on the Bureau of Labor Statistics, which is expected to release the jobs numbers for January at 12:30 PM GMT.
The numbers will give investors a general feeling about the status of the U.S economy, a month after the administration signed the tax reform bill.
Expectations are for the Non-Farm Payrolls (NFP) to increase to 184K from last month’s disappointing numbers of 148K. On Wednesday, Automatic Data Processing (ADP) released its own data, which showed the economy created 234K jobs in January, beating analysts’ expectations by 48K.
In addition, the bureau will release the unemployment rate, which is forecasted to remain unchanged at 4.1%. A surprise decline in this number could increase the hopes of the rate declining to below 4.0%.
With the country at full employment, the headline unemployment rate and NFP will not matter. Instead, they will pay close attention to wage growth and participation rate. Wage growth to remain steady at 0.3% and the participation rate to remain at 67.9%.
Following the tax reform package, hundreds of large firms and thousands of small firms have pledged to increase hourly earnings, give one-time bonuses to employees, or invest in training.
In the meantime, the dollar has recovered from some of the losses we saw yesterday with the dollar index up by 27 basis points.
Earlier this morning, from the UK, we received January’s construction PMI data of 50.2, which was lower than expectations of 52.0. In response to the data, the pound lost 40 basis points against the dollar. However, this could reverse or continue when the jobs numbers are released out of the US later today.
Another focus is on crude oil, which has recovered yesterday’s losses. These losses came after the EIA reported inventory buildup of more than 6.8 million above the analyst expectations. In days to come, we might see more buildup as the maintenance season for the refineries approach. In that line, Goldman Sachs released a report forecasting that Brent could reach $82 in the next six months.
This week, the dollar weakness has continued against the Euro, having lost 55 basis points. Today however, in anticipation of better jobs and wage growth numbers, the dollar has gained a few points against the Euro. Traders will watch out for two areas. First, they will look for the 1.2473 level, which forms an important support. On the other side, they will look at the weekly or three year high of 1.2512.
This week, the GBP/USD pair has recovered from the weekly low of 1.3979 level to a high of 1.4287. Today, the pair has lost 36 basis points following disappointing construction PMI data and in anticipation of the US jobs numbers. The pair is currently trading at the 23.6% Fibonacci retracement level. A breach below this area could see the pair test the 38.6% level, which forms an important support level.
The Australian dollar has lost 152 basis points against the dollar following the disappointing CPI data released on Wednesday. The pair appears to be establishing a double bottom at the 0.7978 level. Whether the downward trend continues or a reversal is established will depend on the U.S. jobs numbers later today.