US jobs report preview: could better jobs numbers derail a dovish Fed?​

This week’s US jobs report brings further light for Federal Reserve (Fed) watchers, as the continued economic uncertainty provides volatility for traders. Coming off the back of a Fed rate-cut, most will perceive this data in the context of the outlook for further rate cuts. From an unemployment standpoint, many will see a rate-cut as unnecessary as it remains around record lows.

However, there is more to it, with this month seeing a three-year high in core durable goods orders, and a jump in core personal consumption expenditures (PCE) price inflation. We did see a second quarter (Q2) gross domestic product (GDP) figure of 2.1% come in heavily below the Q1 rate of 3.1%, yet that was above market expectations of 1.8%. Thus, there is less reason for the Fed to take a uber-dovish stance going forward. However, this week’s jobs report could play a vital role in guiding markets on the future rate path for the Fed. Thus, when the figures are released, markets will be reacting to the economic repercussions, but also what it could mean for future interest rates at the Fed.

What to look out for on Friday

When the US jobs report is released, markets will almost always react to the payrolls figure first, with many algorithms trading specifically around the strength or weakness of that figure. Last time we saw 224,000 jobs added in June, with markets predicting a figure around 170,000 for July. Next markets are likely to focus on the average hourly earnings figure, which provides markets with a proxy for future inflation. Markets expect to see the year-on-year (YoY) figure rise to 3.2% (from 3.1%), with the monthly number remaining at 0.2%. Finally, keep an eye out for the unemployment rate figure (predicted to remain at 3.7%), and the participation rate. Be aware that when you see the payrolls and unemployment rate and unemployment both rise or both fall, that is typically attributed to a shift in the participation rate.

Where now for the dollar?

Looking at the dollar, we have seen a resurgence over the past month, with the ascending trendline coming back into play once more. Tonight’s Fed meeting is likely to bring volatility, but with some of the US economic data improving there is a strong possibility that this phase of rate cuts is relatively brief. Should the Fed indicate such an outlook, we could see the dollar rise towards trendline resistance. Such a rally through the May peak of $97.86 would signal a continuation of the uptrend in play since 2018. However, questions would be asked should price reach trendline resistance. To the downside, the failure to break $97.86 could set us up for a period of downside, with the post-Fed price ability to break through this level key to setting up sentiment for the jobs report.