11:26, 6 October 2023
U.S. Non-Farm Payrolls Preview
As U.S. non-farm payrolls data approaches, set to release tomorrow (Friday, October 6th) at 1:30 pm (UK time), let's delve into market expectations and positioning regarding this pivotal economic report.
In August, the US added 187,000 new jobs, but the unemployment rate also rose to 3.8%. This increase was partly due to a higher participation rate, reaching its highest level since the economy reopened after the COVID-19 pandemic.
The June and July payroll reports were revised downward. Wage growth slowed to 4.3%, which aligns with the Federal Reserve's preferences. However, inflation is showing signs of picking up due to higher fuel prices, potentially leading to wage inflation.
Expectations for tomorrow’s NFP report are 170,000 new jobs added and a slight decrease in the unemployment rate to 3.7%. Average hourly earnings will be closely monitored for signs of wage stickiness.
A robust jobs report could bolster the argument for a year-end rate hike, especially if core prices and wages remain resilient. In such a scenario, we can expect the U.S. dollar to gain strength while U.S. stocks may face downward pressure.
King dollar reigns supreme right now with the U.S dollar basket index surging to two-year highs following the Fed’s recent hawkish comments.
We have a strong and sustainable uptrend on DXY’s daily candle chart (below) with the 20-day exponential moving average (20EMA) tracking along with the ascending trendline. And whilst a deeper pullback is likely to ensue at some point, established trends of this nature tend to take much longer than anticipated to reverse.
Dollar Index Daily Candle Chart
U.S. stocks have undergone a deep retracement in recent months with all three major U.S. stock indices pulling back more than 7% from their summer highs.
The Dow 30 index looks the weakest of the bunch from a technical perspective. Prices have sold off with such strength in recent weeks that the Dow has broke and closed below the lower Keltner Channel for the first time in over a year.
Both the S&P 500 and Nasdaq Composite have completed an ABCD harmonic retracement pattern. Interestingly for the Nasdaq this harmonic completion coincides with a test of a key support level (see chart below). When viewed in the context of Nasdaq's long-term uptrend, this confluence of support levels could be of interest to buyers.
S&P 500 Daily Candle Chart
Dow 30 Daily Candle Chart
Nasdaq Composite Daily Candle Chart