NFP preview: will the US NFP figure outperform again?

Can the November NFP number be replicated?

Market are gearing up for a new year, yet this week will bring a nod to the year gone. Friday’s US jobs report seeks to round off a 2019 that saw non-farm payrolls (NFP) number building towards the end of the year. Coming just behind the January 2019 reading of 304k, last month’s November release provided us with the second highest reading of the year, at 266k.

The size of that monthly rise does provide some with confidence of a potential rise in the dollar, yet market expectations instead signal a likely decline to around 168k for the headline number in December. Part of that story comes from the fact that last month’s gains were exaggerated by the return of approximately 46,000 General Motors employees after a one-month strike.

Wage growth expected to remain elevated

Elsewhere, it is worth noting the fact that the US economy is enjoying a 50-year low of 3.5%, highlighting the difficulty employers will have in finding the right candidate for a job. With that in mind, there is plenty of reasoning behind the expectation of elevated earnings growth.

Markets expect to see a rise into the 0.3% level, following a decline into 0.2% last month. On a year-on-year basis, that average earnings figure currently stands at 3.1%, with the gap between earning and inflation highlighting a significant positive real wage growth evident in the US.

Technical analysis – dollar index

Looking at the weekly chart for the dollar index, we have seen the price decline below trendline support, with markets currently questioning whether we could be on the cusp of a bearish phase. A decline below the 95.33 level would certainly provide a bearish signal to the markets, with this recent decline looking like a potential retracement until that point.

On the daily chart, we are starting to see the pair turn higher following the recent drop below the 76.4% Fibonacci level. With price on the rise, we would need to see a break through 97.37 to negate the downtrend seen since the October peak.

From a payrolls perspective, an outperformance in the headline number could spark such a break to bring about a wider bullish picture. Alternatively, should we see a disappointing report, we should look out for another leg lower in this recent trend, with all eyes on whether the 95.33 support level is broken to bring a wider bearish picture.