NFP Preview: US Dollar Bounce Potential if Jobs Remain Strong

NFP Report Key Points

NFP report expectations: +238K jobs, +0.3% m/m earnings, unemployment at 3.8%
Leading indicators point toward slightly above expectation reading in this month’s NFP report, with headline job growth in the 200K-250K range.
The US Dollar Index (DXY) is sitting at the bottom of its 3-week range, potentially tilting the odds to the upside if we get a decent jobs report.

When is the April NFP Report?

The April NFP report will be released on Friday, May 3 at 8:30 ET.

NFP Report Expectations

Traders and economists expect the NFP report to show that the US created 238K net new jobs, with average hourly earnings rising 0.3% m/m (4.0% y/y) and the U3 unemployment rate holding steady at 3.8%.

NFP Overview

As Fed Chairman Powell noted in his press conference on Wednesday, the US economy has thus far defied expectations for a slowdown to start 2024, and tomorrow’s NFP report is the next major hurdle for growth optimists to clear:

Source: StoneX

US economic data in recent weeks has remained generally strong, though there are some signs of a potential downshift (such as in Wednesday’s 3-year low in JOLTS job openings survey) if you look hard enough, which Mr. Powell seems to be looking for opportunities to do.

That said, the Fed Chairman acknowledged that it would take longer for the committee to gain confidence that inflation is on a sustainable path toward 2%, and even a couple month blip in the jobs market wouldn’t force the Fed’s hand; in other words, the market reaction to this month’s NFP report may be more limited given the low potential for an immediate impact on the Fed’s monetary policy.

NFP Forecast

As regular readers know, we focus on four historically reliable leading indicators to help handicap each month’s NFP report, though this month, the ISM Services PMI survey won’t be released until 90 minutes after NFP, leaving us with just three indicators in focus:

The ISM Manufacturing PMI Employment component bumped up to 48.6 from 47.4 last month.
The ADP Employment report showed 192K net new jobs, holding steady from last month’s upwardly-revised 208K reading.
Finally, the 4-week moving average of initial unemployment claims fell slightly to 210K, down 4K from last month’s 214K and still near historically low levels.

Weighing the data and our internal models, the leading indicators point to a slightly above expectation reading in this month’s NFP report, with headline job growth potentially coming in somewhere in the 200-250K range, albeit with a big band of uncertainty given the current global backdrop.

Regardless, the month-to-month fluctuations in this report are notoriously difficult to predict, so we wouldn’t put too much stock into any forecasts (including ours). As always, the other aspects of the release, prominently including the closely-watched average hourly earnings figure which came in at just 0.3% m/m in the most recent NFP report.

Potential NFP Market Reaction

	Wages < 0.2% m/m	Wages 0.2-0.4% m/m	Wages > 0.4% m/m
< 200K jobs	Slightly Bearish USD	Neutral USD	Slightly Bullish USD
200K – 275K jobs	Neutral USD	Slightly Bullish USD	Bullish USD
> 275K jobs	Neutral USD	Bullish USD	Strongly Bullish USD

As we outline below, the US Dollar Index is testing the bottom of its 3-week range, a potential support level after the relatively dovish Fed meeting on Wednesday. With the central bank’s unlikely to cut interest rates until at least July, if not September, the risks may be to the upside in the dollar if a strong jobs report reminds traders that the US remains the strongest developed economy across the globe.

US Dollar Technical Analysis – US Dollar Index (DXY) Chart

Source: TradingView, StoneX

After tagging an 18-month high near 106.50 midway through April, the US Dollar Index (DXY) has carved out a well-defined near-term range between 105.50 and 106.50. As long as that lower level holds as support, there is potential for a bounce back toward 106.00 or even 106.50 on a strong jobs report. Meanwhile, a weaker-than-anticipated read on the labor market could expose previous-resistance-turned-support at 105.00.

-- Written by Matt Weller, Global Head of Research

Follow Matt on Twitter: @MWellerFX

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