If you believe recent Fed commentary then today could be the make or break data point for a September hike. In my mind, today’s NFP is essentially a Fed meeting in terms of its importance for rate hike timing and EURUSD is likely the most sensitive G10 pair (o/n options pricing 80 bps).
Breaking the report down I will be focussing on 3 components to assess how good/bad the Fed views it:
1. Headline NFP – as always market immediately reacts to this number and then looks to details to decide where to go following the gap move.
i. >225 exp. = strong print, immediately USD positive
ii. 180 – 220 = slight disappointment on expectation but still solid and barely impacts 6m avg.
Small USD selloff initially then details will direct us
iii. <180 = Pretty poor headline expect 50/75 pip gap move in EUR immediately then look at details
2. Unemployment vs Participation Rate – Unchanged is ‘good enough’ , a strong trend still pertains with unemployment falling vs. a broadly unchanged participation rate. Only danger for USD longs here is if we see unemployment rate tick higher and/or participation dropping off. Unemployment ticking higher likely takes September off table, EUR pushes toward 1.11
3. Wages – Again, unch is ‘good enough’ >0.2% very positive, 0.1% slight disappointment but not a disaster and <0.1% concerning for September hike argument (wages have to be taken in context with other 2 factors).
NFP day is always a coin toss at the margin but the labour market trend remains intact and I expect a continuation of that theme today and will be hold long USD positions over the event.
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