Fed Rate Cut & Non Farm Payrolls
US Dollar traders can expect some volatility later today. The market will receive the latest interest rate decision from the FOMC at 2 pm ET. After this, a press conference by FOMC Chief Powell’s will follow at 2.30 pm ET. In recent weeks, markets have taken on a much more positive view of the global outlook. This is thanks to progress towards a Brexit deal and an easing of tensions between the US and China. That being said, there is still a pressing need for the FOMC to take out further insurance against downside risks. Is the Fed rate cut a certainty?
Evident in recent data is further weakness in investment as well as a significant deterioration in business conditions, as assessed by the ISMs. Of more substantial concern still, growth in employment and hourly earnings have both throttled back. If sustained, these trends will put consumer sentiment and spending at risk.
Fed Rate Cut Priced
Therefore, market watchers expect the FOMC to cut the federal funds rate by 25bps to 1.5%–1.75%. Fed should remain open in taking further action in the coming months should economic data deteriorate. A December cut and further action in March and June will require a further slowing of growth.
The most significant risk to the market is that the Fed rate cut comes with a marginally more hawkish Powell press conference, buoyed by stabilization on the geopolitical front. Fed funds futures are currently pricing three further cuts by the end of next year, including today’s. A hawkish cut today would cause the market to reprice these expectations quickly.
As mentioned, a significant factor in potential future FED easing is the US labour market, which has begun to show signs of losing momentum in 2019. As the months have rolled on, the data has confirmed a material reduction in the pace of hiring, albeit without any noticeable increase in firing.
In Fridays Non-Farm Payrolls report, market watchers believe October will likely see a continuation of the softer trend, and this will be amplified by the GM strike, resulting in non-farm payrolls printing at or just below the market consensus of 95K.
The Key Numbers
Having ticked down in September, the unemployment rate should stabilize this month to 3.6%. Hourly earnings growth is also likely to be under scrutiny, having slowed to 2.9%yr in September. The absence of a rebound in coming months would be clear evidence of firms reducing costs and hence, downside risks for the consumer.
From a technical and trading perspective, the Dollar has found initial resistance at the lower end of the range pivot 97.80 as this area caps the upside correction bears will target a test of ascending trendline support sited at 96.80. A failure below 96.80 would be a significant bearish development, with the potential for the monthly chart to print a bearish outside key reversal portending further weakness into year-end. Only a close back above 98.00 would cause concern to this bearish bias and suggest a return to the 98.00 /99.00 range trade.