NFP Preview Fed Watching Wages as it Weighs a Potential Rate Cut in June or July

“It would be possible to make another easing move at some point, which would re-center inflation expectations at 2 percent…That might be a great thing to do while the economy is running well.” – St. Louis Fed President James Bullard (2019 voter)

“There is the distinct risk that inflation expectations are too low and will be slow to recover to levels that are consistent with our symmetric 2 percent goal.” – Chicago Fed President Charles Evans (2019 voter)

“If the incoming data were to show a persistent shortfall in inflation below our 2 percent objective…then these are developments that the [Federal Open Market Committee] would take into account in assessing the appropriate stance for monetary policy.” – Fed Vice Chairman Richard Clarida (permanent voter)

When it comes to the current global trading environment, a few things are clear:

Traders are hyper focused on the Federal Reserve’s monetary policy stance…
… and the Fed is hyper focused on inflation in determining policy, as the above quotes show.

Logically, it follows that any data around inflation will be critically important for global markets. And when it comes to inflation data, one of the best leading indicators is employee wages.

While traders love to watch the month-to-month fluctuations in the aggregate number of jobs created, most of those fluctuations are mere noise. As the chart below shows, the 3-month moving average of US job creation has been remarkably steady in the 150k-250k range since 2015!

Source: BLS, FOREX.com

With that in mind, see the key numbers we’ll be watching in tomorrow’s NFP release below:

Source: FOREX.com

NFP Forecast

Last month, we were hamstrung by the late release of the ISM Services PMI report, and while we have all of our leading indicators this time around, they’re painting a profoundly mixed picture:

The ADP Employment report was abysmal, falling to just 27k, it’s lowest level since 2010.
The ISM Non-Manufacturing Survey employment component rose sharply to 58.1 from 53.7 last month.
The ISM Manufacturing Survey employment component rose slightly to 53.7 from 52.4 last month.
The 4-week moving average of initial unemployment claims rose slightly to 215k.

With the two most reliable indicators pointing in opposite directions, there’s elevated uncertainty around the release. That said, we lean toward discounting the anomalous ADP report and expecting a solid NFP report given the generally solid data among the other three reliable employment indicators.

NFP Trade Ideas

See possible wage and job creation figures, along with the potential bias for the USD dollar below:

	Earnings < 0.1%	Earnings = 0.2%	Earnings > 0.3%
< 150k Jobs	Bearish USD	Slightly Bearish USD	Slightly Bullish USD
150k-200k Jobs	Bearish USD	Neutral USD	Bullish USD
> 200k Jobs	Slightly Bearish USD	Slightly Bullish USD	Strongly Bullish USD

In the event the jobs and the wage data beat expectations, then we would favor looking for short-term bullish setups on the dollar against the likes of the British pound given the ongoing Brexit uncertainty in the UK. But if the jobs data misses expectations, then we would favor looking for bearish setups on the dollar against a currency like the Aussie dollar, as it could serve as a catalyst for more “risk on” sentiment on the theory that the Fed may have to cut interest rates either later this month or (more likely) in July.

The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.

Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex, commodity futures, or digital assets, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to FOREX.com or GAIN Capital refer to StoneX Group Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.

Please note that foreign exchange and other leveraged trading involves significant risk of loss. It is not suitable for all investors and you should make sure you understand the risks involved, seeking independent advice if necessary.

The products and services available to you at FOREX.com will depend on your location and on which of its regulated entities holds your account.

FOREX.com is a trading name of GAIN Global Markets Inc. which is authorized and regulated by the Cayman Islands Monetary Authority under the Securities Investment Business Law of the Cayman Islands (as revised) with License number 25033.

FOREX.com may, from time to time, offer payment processing services with respect to card deposits through StoneX Financial Ltd, Moor House First Floor, 120 London Wall, London, EC2Y 5ET.

GAIN Global Markets Inc. has its principal place of business at 30 Independence Blvd, Suite 300 (3rd floor), Warren, NJ 07059, USA., and is a wholly-owned subsidiary of StoneX Group Inc.