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U.S. Dollar Rallies Ahead Of NFP – Will Jobs Report Beat?

By Kathy LienForexAug 05, 2021 03:10PM ET
www.investing.com/analysis/us-dollar-rallies-ahead-of-nfp--will-jobs-report-beat-200596503
U.S. Dollar Rallies Ahead Of NFP – Will Jobs Report Beat?
By Kathy Lien   |  Aug 05, 2021 03:10PM ET
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The rally in stocks, the rise in Treasury yields and the demand for U.S. dollars tell us that investors anticipate a strong non-farm payrolls report on Friday. The consensus forecast is 870,000 jobs, which would be the strongest increase since August, while the whisper number is 1 million. On Wednesday, investors were caught off guard by the weak ADP private payroll number, but since then their worries have been eased by other data sets. This morning, for example, we learned that jobless claims fell to a three-week low as continuing claims dropped to pre-pandemic lows. July was a strong month for the U.S. economy, with increased spending on leisure activities, like travel and restaurants. With businesses across the nation hiring, the jobs report should be good.

Every month we also track a few economic reports that can have strong predictive capabilities for non-farm payrolls, and nearly all point to a stronger jobs report in July compared with June. Service sector ISM hit a record high, with the employment component returning to expansion. Challenger reported the fewest job cuts in 21 years, while consumer confidence hit a pandemic high, according to Conference Board, with jobless claims and continuing claims moving lower. The only outlier was ADP, but this index has deviated from NFPs more than usual in recent months. The sluggish increase can also be a reflection of labor shortage in the private sector.

Arguments For Stronger Non-Farm Payrolls

• Employment component of ISM Non-Manufacturing rises to 53.8 from 49.3
• Employment component of ISM Manufacturing rises to 52.9 from 49.9
• Challenger job cuts drop to 21-year low
University of Michigan Consumer Sentiment Index rises to 85.5
Conference Board Consumer Confidence Index hits pandemic high
• Jobless Claims 4-Week Average falls slightly to 394,500 from 397,000
• Continuing Claims fall to pre-pandemic lows

Arguments for Weaker Non-Farm Payrolls

• ADP drops to 330,000 from 680,000

If non-farm payrolls exceeds last month’s 850,000 increase and the unemployment drops from 5.9%, as expected, and earnings growth holds steady or rises, USD/JPY will hit 110 and EUR/USD will drop below 1.18. The larger the increase, the stronger the move for the U.S. dollar. If payrolls rise by less than 800,000 and the unemployment rate or earnings growth falls short as well, we expect a modest sell-off in the U.S. dollar. A steep decline would happen if job growth is less than 600,000.

Canada also releases labor market numbers on Friday. Following strong trade data and a recent increase in IVEY PMI, economists are calling for another month of strong job growth. Canada finally added jobs in June after losses in April and May. With increased vaccinations and fewer restrictions, job growth should increase in July, validating the central bank’s reduction in asset purchases.

The Bank of England voted 7 to 1 to leave monetary policy unchanged on Thursday. Inflation forecasts were upgraded, GDP estimates were left unchanged and the central bank provided a little more clarity of the direction of future policy. It said modest tightening may be needed in the next two to three years, with interest rate hikes likely to precede the end of QE. More specifically, it expects QE reinvestment to end when rates hit 0.5%. Back in 2018, the central bank said it would not start the unwind of QE until interest rates hit 1.5%. GBP/USD traded slightly higher on the back of the rate decision.

U.S. Dollar Rallies Ahead Of NFP – Will Jobs Report Beat?
 

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U.S. Dollar Rallies Ahead Of NFP – Will Jobs Report Beat?

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Comments (10)
Alex Growth
Alex Growth Aug 06, 2021 4:10PM ET
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Hello all, if someone expert in this, pls advice:1. Is it always a strengthening dollar will hit down the price of oil?2. What are the key indicators that will strengthen the dollar other then employment report?
Tushar Baviskar
Tushar Baviskar Aug 06, 2021 5:01AM ET
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wages growth is important for USD to shake.
Alex Growth
Alex Growth Aug 06, 2021 5:01AM ET
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Is it always a better employement then better dollar then hit down oil prices?
asep suhaya
asep suhaya Aug 06, 2021 2:45AM ET
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thanks for the info
Mateo Muñoz Najar
Mateo Muñoz Najar Aug 06, 2021 1:52AM ET
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Good analysis, thanks!
Tshepo Reginald Mofokeng
Tshepo Reginald Mofokeng Aug 05, 2021 5:55PM ET
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guys just create a watchlist on your https://investing.com app and add this five companies under Nasdag/Us 100:1. Amazon2. Tesla3. apple4.facebook5.goggleif they are all negative at 15:30 sell(Nasdag)if they are all positive buy(Nasdag)
Qasim Qasim
Qasim Qasim Aug 05, 2021 5:45PM ET
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Hlo how would l know
Qasim Qasim
Qasim Qasim Aug 05, 2021 5:44PM ET
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Dahiru Muhammad
Dahiru Muhammad Aug 05, 2021 5:35PM ET
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hlo how would I know how to trade
Twin Cities Kapital Hill
Twin Cities Kapital Hill Aug 05, 2021 5:35PM ET
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I would just selling the dollar. I'm not sure what she's talking about as far as a rally. NFP has already reported to have underpreformed the 800,000 u say expect it to fall.
Tim Gilbert
TimothyTekno2020 Aug 05, 2021 5:35PM ET
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Tons of ways. Too late to buy call options in SP, IWM, UUP or puts on TLT (fast growth = yields rise & Treasuries sell), but you can buy after market or pre market SPXL and TNA if jobs numbers bullish. Nasdaq QQQ and TQQQ are tricky so focus on cyclicals, value and well diversified sectors. Historically, RXL and other healthcare sector ETFs correlate well to Dollar rally, which is why RXL has been hot since June low, but that’s intermediate term, not necessarily a 1-3 day rally since healthcare is not so cyclical and is therefore on the defensive side, similar to tech that has secular growth trend independent of business cycles.
Tim Gilbert
TimothyTekno2020 Aug 05, 2021 5:35PM ET
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Twin Cities Kapital Hill His question is how to trade if her evidence points to beating consensus expectations on tomorrow’s report, not if she’s wrong.I think she makes a good case. No idea if she’s wrong, since Delta variant has impacted sales, hiring and absenteeism in TX, FL and other Southern states, something she omitted, understandably since it should already be factored into other figures she cited.
Mario tragik
Mario tragik Aug 05, 2021 5:35PM ET
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Or it could all be a bull trap. who are these"investors" anticipating anyways? Is this what we call algorithms and computer programs nowadays?
patrick maina
patrick maina Aug 05, 2021 4:58PM ET
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That's quite informative, 👍
 
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