US jobs report preview: will US unemployment hit 20%

Watch live NFP announcement and analysis this Friday on the IG platform at 13:25 BST.

Friday 5th June sees the US Labour Department release their US jobs report covering data from May. Coming off the back of an incredible 20.5 million decline in April (10 times the previous record decline in 1945), we are expecting to see a significantly smaller decline this time around. Wednesday’s ADP payrolls figure gives us a gauge of the kind of area we could be looking at, with the sharp rise to -2.76 million faring much better than the 9 million decline many had expected. With that in mind, we will be watching careful to see if a similar outperformance comes into play on Friday given market expectations of a figure around -8 million.

The often-boring unemployment rate reading is taking on a much more important role, providing a key gauge to compare the success or failings of domestic policies aiming at avoiding mass job losses. Unfortunately, the rapid spike in unemployment looks to be part of the new norm, with markets looking for a figure closer to 20% after the 14.7% reading in April.

One stark shift we saw within last month’s jobs report came in relation to the average hourly earnings figure, which spiked from 0.4% to a whopping 4.7%. This provides us with an idea of exactly where these job losses are coming into play, with those on a low income in sectors such as services dealt a blow. However, it is the year-on-year figure that will be interesting given volatility we are seeing on a monthly basis, with the April figure of 7.9% expected to rise further to a historic 8.5%. While this tells you a lot about the types of jobs being lost, it is unlikely to play much role in determining policymaking as we move forward.

From a market perspective, the reaction to data releases has been somewhat lacking. The lack of any major volatility around some truly historic numbers signals a market perception that they are generally backwards looking. If the incredible stock-market performance has told us anything, it is that traders are invariably forward-looking. Thus, while we could see some significant short-term volatility around this release, it is unlikely to really shape the medium-term trajectory unless we see something truly shocking. It is difficult to be shocked in this current environment.

US dollar: technical analysis

The dollar has been on the slide of late, with lessened haven demand coupled with protests across the US and fears over the potential for a second coronavirus breakout. The dollar index downtrend remains intact now we have seen price break below the 9713 support level once more. This highlights expectations of further downside within an incredibly consistent downtrend. With that in mind, a bearish picture remains in play unless we see the dollar index break through the 9758 resistance respected in the lead up to Fridays job report. Watch out for trendline support which could come into play, with a drop back below that point providing greater confidence of further downside.