December NFP Forecast At 160K
December NFP is due on Friday and traders are eagerly awaiting the release following November’s bumper report. The November reading of 266k jobs was well above market expectations of a 180k reading. It also came with 41k upward revision to the prior two months readings.
The strong reading was mainly a result of the GM workers (who were on strike) returning to their jobs. This theme contributed roughly 46k jobs to the headline figure. The release was a key driver of upside in USD. This encouraged the view that the Fed would remain on hold over December, which it did.
At the December FOMC, the Fed essentially reaffirmed its view that, for now, the current policy rate remains appropriate. However, the Fed did say that it would be keeping an eye on incoming data to determine how best to act at each meeting. The read here is that, although the Fed is comfortable with things, for now, any further downturn in data could see the need for easing once again.
Since the last jobs figure, the US announced that it will sign off on the phase-one trade deal with China. The deal, which came out in October, missed its initial signing date due to the cancellation of the Chilean APEC meeting. However, ahead of new US tariffs last month, the US confirmed the deal. Last week Trump announced that the agreement will now be signed in Washington on January 15th.
Risks To This View
In light of these positive developments, a further strong employment release would help cement USD expectations. It could also provide firmer support for the dollar. The market is looking for a 160k reading with Bloomberg reporting an analyst range of 125k – 210k. However, there are some risks to this projection. The latest ISM manufacturing reading was below expectations once again. Crucially, the employment component of the reading was at its lowest levels since the beginning of 2016.
December NFP Expectations
If the NFP comes in at the expected figure or above, this will keep USD on track. As a result, it could encourage the view that the Fed is likely to remain on hold and shifting the focus back towards potential policy normalisation in the near future.
However, if the NFP comes in below expectations, this will pose some questions around the Fed’s view – especially in light of the weakness still seen in other key indicators. A heavy downside miss could fuel a much deeper correction lower in USD given the backdrop of geopolitical tensions between the US and Iran.
Away from the headline figure, traders should also keep an eye on wage growth and the Unemployment rate. Wage growth could print 3.1% last month. It is down from the 3.4% peak achieved at the start of last year. Any downside surprise here could take the shine out of the December NFP even if it does hit the consensus figure. The unemployment rate might remain the same at 3.5%, its lowest level since 1969.
The USD Index found support at the recent test of the 96.31 level, which has turned price higher again. For now, the index is retesting the broken bullish trend line from last years highs. Back above here, the focus will move back onto a test of the 97.68 level. Looking ahead to the release, if we see a strong employment report overall on Friday, the USD could continue up to the 97.68, potentially breaking above if the whole report is positive. If the report comes in below expectations, however, a break below the 96.31 level is likely. Depending on the scale of the miss, the 95.09 level might come into focus as the next support.