💲 USD deepens drop ahead of NFP

A key piece of US economic data will be released today at 1:30 pm GMT - NFP report for November. US labor market held strong for months and justified aggressive tightening undertaken by the Federal Reserve. However, other economic data started to deteriorate as of late and recent reports suggest that peak inflation may have already been reached. Should jobs data also come softer-than-expected, Fed will have more reasons to moderate the pace of rate hikes.

What to know ahead of the NFP release?

• Market expects addition of 200k jobs in November, down from October's 261k increase

• ADP report hinted at a weakish employment gain of just 127k with a 100k drop in manufacturing jobs and over 200k increase in services jobs

• Manufacturing ISM employment subindex dropped from 50.0 pts in October to 48.4 pts in November

• Challenger report on planned lay-offs showed an increase to 76.8k, up from previous 33.8k. This is also over 400% higher than a year ago

• Unemployment rate is expected to remain unchanged at 3.7%. US yield curve, a leading indicator, gives little reasons to believe that unemployment rate will jump above 4% desired by Fed in near-term

• Wage growth is seen decelerating from 4.7 to 4.6% YoY. However, such a reading would still be far above 3% wage growth that is said to be in-line with Fed's 2% inflation target

How may markets react?

EURUSD is trading at the highest level in almost 6-months and is looking towards a 38.2% retracement of a major downward move. Should data show cooling on US jobs market, it could give markets more reasons to believe that Fed will moderate pace of rate hikes. A drop in US yields would be needed for EURUSD to look towards 1.08-1.10 area.

Source: xStation5

US500 continues to trade with a bearish tilt. A strong jobs growth combined with deceleration in wage growth would be the most desired outcome for Wall Street. Should NFP report show a 150-200k jobs addition and slowdown in wage growth to 4.5-4.6%, US500 may extend gains and look towards 4,100-4,200 pts area.

Source: xStation5