NFP early insight: Initial claims hint at upside potential for NFP…and USD/JPY

After Jackson Hole, the monthly US jobs reports may be the most important regularly-occurring economic data for traders to watch in the coming months...

Jobs 3

As we work through the last of the “dog days of summer” (in the Northern Hemisphere at least), traders and portfolio managers will soon return to their desks in earnest for the busy Autumn season, and that means a renewed focus on the Federal Reserve and its policy normalization plans.

As we noted on Friday, Fed Chairman Powell struck a cautious tone at his highly-anticipated Jackson Hole speech, warning against the risks of premature policy tightening and reiterating that there was still “much ground to cover” for the US economy to reach maximum employment. Most traders viewed this speech as likely precluding a taper announcement at the central bank’s September meeting, leaving the market focused on the Fed’s November policy meeting, a full three Non-Farm Payroll (NFP) reports from now.

Nonetheless, Powell’s emphasis on the labor market and his ongoing assertions that price pressures will be “transitory” means that the monthly US jobs reports may be the most important regularly-occurring economic data for traders to watch in the coming months. We’ll have our full NFP preview report live on Thursday, but we wanted to highlight one of the key leading indicators and identify a key market to watch through the whole week as readers prepare for the key US jobs figures.

One key indicator that points to a solid print on Friday is initial unemployment claims. As the chart below shows, the 4-week moving average of new unemployed Americans has fallen to a post-pandemic low of 366k after stalling around 400k for the past two months:

Source: FRED

With (marginally) fewer Americans losing their jobs over the last month, there may be some potential for Friday’s NFP reading to beat the consensus estimate of around 750k net new jobs. We’ll have a full breakdown of what this data and other reliable leading indicators mean for NFP on Thursday.

Market to watch: USD/JPY

We’ve noted this before, but it bears repeating: USD/JPY tends to have the cleanest and most direct reaction to the monthly jobs report (and all US data), so it bears close monitoring for anyone trading US economic releases.

Looking at the chart below, USD/JPY has spent the last eight weeks consolidating between support at 109.00 and resistance up near 110.70. As many experienced traders know, volatility tends to be cyclical, meaning that periods of constrained market movement tend to be followed by periods of rapid, higher-volatility movements when price eventually breaks out.

It remains to be seen what direction the pair will ultimately break from its well-trodden range, but an NFP-driven bullish breakout this week, if seen, could open the door for a continuation toward 18-month highs near 111.70 in short order, whereas a bearish breakdown could quickly expose the April lows near 107.50 as we head into next month.

Source: StoneX, TradingView


How to trade with City Index

You can trade easily trade with City Index by using these four easy steps:

  1. Open an account, or log in if you’re already a customer 

    Open an account in the UK
    Open an account in Australia
    Open an account in Singapore

  2. Search for the company you want to trade in our award-winning platform 
  3. Choose your position and size, and your stop and limit levels 
  4. Place the trade

More from NFP

Disclaimer

This report is intended for general circulation only. It should not be construed as a recommendation, or an offer (or solicitation of an offer) to buy or sell any financial products. The information provided does not take into account your specific investment objectives, financial situation or particular needs. Before you act on any recommendation that may be contained in this report, independent advice ought to be sought from a financial adviser regarding the suitability of the investment product, taking into account your specific investment objectives, financial situation or particular needs.

StoneX Financial Pte. Ltd., may distribute reports produced by its respective foreign entities or affiliates within the StoneX group of companies or third parties pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed to a person in Singapore who is not an accredited investor, expert investor or an institutional investor (as defined in the Securities Futures Act), StoneX Financial Pte. Ltd. accepts legal responsibility to such persons for the contents of the report only to the extent required by law. Singapore recipients should contact StoneX Financial Pte. Ltd. at 6826 9988 for matters arising from, or in connection with the report.

In the case of all other recipients of this report, to the extent permitted by applicable laws and regulations neither StoneX Financial Pte. Ltd. nor its associated companies will be responsible or liable for any loss or damage incurred arising out of, or in connection with, any use of the information contained in this report and all such liability is hereby expressly disclaimed. No representation or warranty is made, express or implied, that the content of this report is complete or accurate.

StoneX Financial Pte. Ltd. is not under any obligation to update this report.

Trading CFDs and FX on margin carries a high level of risk that may not be suitable for some investors. Consider your investment objectives, level of experience, financial resources, risk appetite and other relevant circumstances carefully. The possibility exists that you could lose some or all of your investments, including your initial deposits. If in doubt, please seek independent expert advice. Visit cityindex.com.sg for the complete Risk Disclosure Statement.