Investors cautiously await the big data
Investors and traders across several asset classes are having tough times determining their next move. Stocks, bonds, and currencies have been stuck in tight ranges throughout this week, making it somewhat boring to sit in front of screens.
There is an extremely high chance for this boredom to end on Friday with the release of May’s US jobs report.
Last month, the US economy delivered the biggest ever miss in non-farm payrolls numbers. It came 730,000 short of the anticipated 1 million figure. That led to a significant decline in the US dollar against its peers, so did US government bond real yields, as the prospects of tightening monetary policy by the Federal Reserve looked unrealistic despite signs of increasing inflationary pressures.
April’s sluggish job growth was inconsistent with the big theme of a booming US recovery. So, tomorrow’s NFP report will be closely watched for an indication of whether there is a structural problem in the labor market, or the previous report was just a one-off blip.
Speculators are now reluctant to add short positions on the US currency after having fell more than 3.5% over the past two months. The dollar index has found solid support near 89.60 and needs strong reasonings to break below. However, we started seeing a shift in tone from several Fed speakers such as Patrick Harker who said the Fed should begin “thinking of thinking of tapering.” The messages we are getting from Fed officials most recently are clearly less dovish compared to the past several months and for these messages to translate into action there should be an evidence of improving labor market.
If the jobs market delivers a positive surprise, expect the dollar to rebound sharply. On the contrary, a negative one could see the US currency drop below the 89.60 support level, leading to further weakness.
Today’s ADP Employment, jobless claims, and ISM services data may provide some hints about Friday’s NFP, so expect volatility to slightly increase as we enter the US trading session. However, many traders and investors will likely wait until tomorrow’s release before making the big moves. So, buckle your seatbelts and enjoy the ride!