Talking Points
- ADP Employment Tops Expectations in November
- Monster.com Employment Index Falls To Lowest Level Since May
- ISM Manufacturing Remains at Elevated Levels
- U. of Michigan Confidence Rises to Five-Month High
- Unemployment Rate To Remain Unchanged at 9.6 Percent
Currency traders will place the spotlight on the nonfarm payrolls report in the world's largest economy. Economists are expecting payrolls to advance 150K in November after climbing 151K the month prior. As inflation concerns in the U.S. slowly resurface on the back of the Fed's increase in asset purchases, a better than forecasted release could raise interest rate expectations and serve as the catalyst needed for the greenback to continue its northern journey. On the other hand, a rise in the U.S. labor force could fuel risk appetite and weigh on the buck due to the fact that the dollar has been benefiting from safe have flows amid Euro-Zone debt fears.
Ahead of the release, the ISM manufacturing report remained at elevated levels during the month of November as the employment component remained well above 50.0. At the same time, the ADP employment index climbed to 93.0K to mark the highest level since November 2007. On average, the ADP private sector hiring estimate tends to undershoot the labor department's measure, thus traders should not rule out the private component of the NFP report exceeding forecasts. Meanwhile, the University of Michigan confidence index advanced to a five month high, a sign that optimism is regaining its course. However, the monster.com employment index fell to an eight month low. The report is of great importance because the index measures overall employee demand from online recruitment activity, reviewing more than 1500 websites. Therefore, the indicator is signaling that hiring may remain subdued in the short term.
Meanwhile, retail seasonal hiring/temporary hiring could be above normal levels in light of the holiday season. Similar to last month's report, the drag of government workers likely faded. Indeed, the U.S. economy will need to add more than 200K in payrolls to return to pre-recession levels and chip away at the unemployment rate, but a better than expected release is a foot in the right direction. Moreover, the recent asset purchases by the Fed are expected to boost employment and consumer prices as both figures remain at depressed levels. So what does this mean for price action?
As of late, the U.S. dollar has been benefiting from safe have flows, which has been the case over the past 48 hours lead by China's PMI manufacturing rising to its highest level since April, and followed by U.K. PMI and U.S. ISM manufacturing topping expectations. Therefore, a better than expected report could fuel risk appetite and additional weight on the buck. However, the opposing view holds true and could serve as the catalyst needed for the greenback to continue its northern journey. Thus, gauging sentiment will be as important as the report itself.
Created by Michael Wright
Source: Bloomberg– Created by Michael Wright
The unemployment rate in the U.S. has fallen from a high of 9.9 percent in April to 9.5 percent in July and now stands at 9.6 percent, according to the U.S. labor department. Previously, economists expected the jobless rate to return to at least 9.8 percent in the medium term as previously discouraged workers re-enter the workforce. However, the recent change of events aims to ensure that unemployment does not reach those forecasted levels.
USD/JPY Daily Chart
Source: Intellicharts – Prepared by Michael Wright
USDJPY: The pair stands at the crossroads as of late after rallying from the yearly low of 80.234 to 83.792. Indeed, there is major support at the 10-day moving average and so long as price action cannot break back below this level, upside risks remain. On the other hand, the slow stochastic indicator has crossed over to the downside and now looks poised to recover from oversold territory, while the MACD is displaying a negative slope. However the latter is not indicative for losses until a crossover to the downside appears. All in all, price action in the near term will dictate price action as the pair has worked its way into a congested area.
Written by Michael Wright, Currency Analyst
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