January 2023 NFP Report Preview » No Signs of Employment Drop!

January 2023 NFP Report Preview » No Signs of Employment Drop!

Fortunately, some of the early data suggests that US consumer demand remained solid in December, and that optimism also supports heightened expectations for the US labor market.

Tomorrow is the first employment report of the new year, and based on recent statements from Fed politicians, the central bank’s New Year’s resolution was to redouble its efforts to fight inflation at all costs. Fortunately, some of the early data suggests that US consumer demand remained solid in December, and that optimism also supports high labor market expectations.

Traders and economists expect 200,000 new jobs to be created in December and workers’ average hourly wages to increase by 0.4%, raising future price expectations.

Are these expectations justified? We’ll dive into the main leading indicators from Friday’s Critical Works Report below!

NFP Predictions

As regular readers know, we rely on four historically reliable leading indicators to help anticipate each month’s NFP report, but due to the vagaries of the economic calendar, we won’t have access to the ISM Services PMI report until after the NFP report is released in this month. :

  • The employment component of the ISM Manufacturing PMI was 51.4, up three points from the previous month, and back in positive territory.
  • The ADP Jobs Report was 235,000 net new jobs compared to 182,000 last month.
  • Finally, the 4-week moving average of initial jobless claims fell to 214,000, slightly below last month’s average close to historic lows.

As a reminder, the state of the US labor market remains more uncertain and volatile than usual due to the unprecedented disruption of the COVID pandemic. However, weighing the data and our internal models, the leading indicators point to a better-than-expected NFP report for this month, with overall job growth potentially somewhere in the 200k-300k range, albeit with only a larger band of uncertainty than ever given the current global context.

In any case, the monthly fluctuations in this report are notoriously hard to predict, so we won’t put too much emphasis on forecasts (including our own). As always, other aspects of the publication, including the average hourly wage, which rose 0.6% last month, are likely to be just as important as the figure itself.

Possible market reaction

Wage < 0,3% Заработная плата 0,3-0,5% Заработная плата > 0.5% < 100,000 jobs USD sharply bearish
USD slightly bearish
USD slightly bullish

100,000 to 300,000 jobs
US dollar is bearish
The US dollar is neutral
US dollar bullish

> 300 thousand jobs
USD slightly bearish
USD slightly bullish
dollar is strongly bullish

The US Dollar Index (DXY) eased slightly during the December slowdown and in particular has spent the past four weeks consolidating in a tight 150-point range between 103.50 and 105.00. This leaves the short-term trend in motion, but on the positive side for traders, suggests we may get a clear reaction to the NFP report.

As for potential trade setups, readers may want to consider buying the US dollar against the Swiss franc on the back of a strong US jobs report. In this scenario, the pair could find support from its previous lows in the 0.9200-20 range, with room to recover to weekly highs at 0.9400 before facing significant resistance.

Meanwhile, a weak employment report could provide a selling opportunity in USD/CAD. The N American pair is testing a four-week low near 1.3500 at press time and a break below this key level (especially if confirmed by a strong Canadian jobs report at the same time) could open the door for a continuation lower towards 1.3400. or lower on weekends.

Matt Weller, CFA, CMT, » Official site

Disclaimer: The information and opinions contained in this report are for general information only and do not constitute an offer or solicitation to buy or sell any currency contracts or CFDs. Although the information contained herein has been obtained from sources believed to be reliable, the author does not warrant its accuracy or completeness and shall not be liable for any direct, indirect or consequential damages that may result from anyone relying on such information.

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