Summary:

• The NFP report on Friday is one of the most anticipated by traders
• Employment number is likely to be affected by the hurricanes
• The momentum is with US dollar, USDIDX faces a resistance at 94 points

The NFP is traditionally the most anticipated monthly report from the US economy and arguably the most traded report on the financial markets. There are some good reasons for that: healthy employment gains are a sign of a strong economy and when coupled with rising wages could spell higher inflation. This is of interest for the Fed that is preparing the markets for the third interest rate hike this year. In this analysis we present a preview for the Friday’s NFP that is going to be released at 1:30pm BST. 

The consensus for employment change is low because investors expect the report to be affected by hurricanes. Source: xStation5 

The first thing you will notice is that the consensus for employment gain in September is very low at just +90k, down from an already below expectations 156k reading from August. So are we seeing a slowdown in the US economy that could hurt the US dollar? Not necessarily. Remember those scary hurricanes that haunted Texas and Florida? They had an impact and disrupted business – an effect that we are likely to see in the NFP tomorrow but that the Fed already has discounted as temporary. 

Even without an impact from hurricanes, September has been the third worst month for employment so far during this decade. Source: Macrobond, XTB Research 

In fact we already saw that on Wednesday when the ADP (a private gauge of the US employment took a dive to +135k from +237k and yet was still above the consensus that saw employment gain of just +125k. The Fed could be right to see such impact as temporary – a measure of employment in the ISM indices inched up again in September and is now the strongest since July 2015 suggesting that the trend in employment might not be slowing down at all. 

Traders could look through any weak employment number as a trend seems to be strong. The ISM surveys show that the labour market conditions are close to highs of this decade. Source: Macrobond, XTB Research 

Even without impacts from hurricanes employment gains in September have been below average during this decade – recall that we stressed this last month and indeed it was confirmed in a weaker data for August. For all those reasons markets could ignore the employment number and any reaction to a low reading (or even negative) could be very short lived for as long as wage data (a 2.5% growth is expected) does not disappoint markedly. 

US dollar index has broken a downward trend line and is facing a resistance at 94 points. Source: xStation5 

Looking at the USDIDX (US dollar index) chart, the momentum is clearly with the US dollar. Even though a range of this correction is already nearly as large as the maximum in the cycle, we could see an overbalance because a downward trend line has already been broken. The present resistance is at 94 points and the next one at 96.50. The nearest support is at 92.50 points.