Bonus article: February NFP report market idea

What: this Friday at 1330 GMT the US Non Farm Payrolls report for February will be released. This is arguably one of the most important data releases of the month and can set the tone for trading in the US dollar and US stocks in the medium-term. However, markets become very volatile around the NFP release, and with other factors also impacting the price of dollar assets, including a potential US-China trade deal, we could see an exceptional bout of volatility at the end of this week.

Why: The market is currently predicting an increase of 180,000, lower than the huge 304,000 increase in January. We believe that the risks are growing that the NFP report for February could come in lower than expected for a couple of reasons. Firstly, the employment component of the ISM non-manufacturing report for February was weaker than expected, and this has a decent correlation with the NFP report. Added to this, the ADP report of private sector employment in the US was also lower than expected when it was released on Wednesday. Private sector employment rose by 183,000, lower than the 190,000 expected. Overall, the most recent employment indicators suggest that as the US economy shows signs of slowing down in Q1, employers are taking their feet off the gas pedal when it comes to the rate of jobs growth. We would also argue that jobs growth may have slowed after the huge rise in January, which would be a normal pattern for NFPs.

How: USD/JPY tends to be the most sensitive to the NFP report compared to the other major dollar crosses, so this is the pair that we like to focus on during the NFP release. If we do get a weaker than expected number, say 150,000-160,000k, then this could weigh on USD/JPY. This pair has met stiff resistance above 112.00, which suggests that this is the high for now, while 111.50 is acting as short-term support so far on Thursday.

If we see a stronger number then USD/JPY may attempt to break through 112.00, a decisive break would be considered a weekly close above 112.30-50. However, if payrolls miss expectations then we could see USD/JPY sink further, with key support levels at 110.80 then 110.35. If we see a move below 110.30, this would be a significant bearish development  for USD/JPY, potentially opening the way for a move back to 108.50 – the low from the start of February.

Stocks:

While the S&P 500 is more likely to be impacted by the state of the US-China trade negotiations rather than the NFP data later this week, momentum appears to be on the downside for this index after impressive gains in January and February. After peaking above 2,820 last week, it has been downhill since then, with the index dropping 80 points in the lead up to the NFP report. At this stage, this looks like a healthy pullback, however, this index remains sensitive to negative news headlines regarding the US- China trade negotiations.