US Nonfarm Payrolls Forecast: Analyzing January NFP release

• The US Nonfarm Payrolls are foreseen at 185K in January, down from December’s 223K.
• The US Dollar’s fate hinges on the Average Hourly Earnings, which unexpectedly declined to 4.6% in December.
• The Unemployment Rate published by the Bureau of Labor Statistics is seen a tad higher at 3.6% in January.

The Nonfarm Payrolls (NFP) data will be released by the Bureau of Labor Statistics (BLS) this Friday at 13.30 GMT. The last NFP release is set to show that the United States economy created 185K jobs in January. However, a downside surprise cannot be ruled out after the US ADP private sector payrolls dropped sharply to 106K in January, missing expectations of 178K and against the previous reading of 253K. Weak US employment data could exacerbate the pain in the US Dollar (USD).

The US Dollar has been meandering near 10-month lows against its major rivals, as markets read the latest comments by Federal Reserve (Fed) Chairman Jerome Powell as largely dovish.

Powell referred repeatedly during a news conference to the "disinflationary" process that now appeared to be underway, which markets view as the Fed could be turning a corner on its tightening cycle. While that justifies a weaker USD, the move may have gone too far. This should imply the beckoning of an upside correction in the US Dollar should the Nonfarm Payrolls headline number deliver a positive surprise.

What to expect in the next Nonfarm Payrolls report?

Friday's United States (US) economic docket highlights the release of the closely-watched US monthly labor market data for January. And, the Nonfarm Payrolls expectations are that the economy added 185K jobs during the reported month, down from the 223K job additions in December. The Unemployment Rate is anticipated to tick slightly higher to 3.6% in January. 

Aside from the headline NFP number, investors will closely examine the Average Hourly Earnings, which could offer fresh insight into the possibility of any further rise in inflationary pressures. The US Average Hourly Earnings are expected to print 4.9% YoY in January, up from 4.6% reported in December while on a monthly basis, the wage growth is seen unchanged at 0.3% in the reported period.

Analysts at Commerzbank agree with the consensus of a slowing-down US job market: “In December, more than 200K new jobs were created again in the US. However, there were some details in the employment report that point to a gradual weakening of the labor market. For example, the number of temporary workers shrank for the fifth month in a row, a trend previously seen only in the run-up to recessions. In addition, despite continued substantial job creation, the number of hours worked fell. We, therefore, expect job growth to decline further to 180K in January.”

When will US January Nonfarm Payrolls report be released and how could it affect EUR/USD?

The Nonfarm Payrolls report is scheduled for release at 13:30 GMT on Friday, February 3. As the dust settles over the dovish Federal Reserve and the European Central Bank monetary policy decisions, the EUR/USD pair has entered a phase of downside consolidation near the 1.0900 threshold. Weaker US employment details could trigger a fresh leg down in the USD and provide an additional boost to the main currency pair.

In contrast, any positive surprise could offer legs to the ongoing USD recovery but any upside could be limited amid increased expectations that the US central bank will pause its rate-hiking cycle. This is what revives the US Dollar bears and suggests that the path of least resistance for the EUR/USD pair is to the upside. 

Dhwani Mehta, Analyst at FXStreet, offers a brief technical overview and outlines important technical levels to trade the EUR/USD pair: “With a potential bullish crossover on the daily chart, represented by the bullish 100-Daily Moving Average (DMA) piercing the flattish 200DMA from below, the upside appears more compelling for the EUR/USD pair. The 14-day Relative Strength Index (RSI) is holding comfortably above the midline, keeping buyers hopeful. The pair needs to recapture the 1.0950 psychological barrier to resume the uptrend toward the 1.1000 round figure. 

“On the downside, the EUR/USD pair could extend the correction toward the bullish 21DMA at 1.0837 should the previous day’s low fail to offer support. Further south, the January 31 low at 1.0802 will come to the rescue of the Euro buyers, ” Dhwani adds further.

Nonfarm Payrolls related content

• US January Nonfarm Payrolls Preview: Analyzing Gold price's reaction to NFP surprises
• EUR/USD Price Analysis: Volatility to escalate as USD Index strengthens ahead of US NFP
• Fed to deliver 25bp hikes in March and May for a peak funds rate of 5.00-5.25% – Goldman Sachs

About the Nonfarm Payrolls report

The Nonfarm Payrolls released by the US Bureau of Labor Statistics presents the number of new jobs created during the previous month, in all non-agricultural businesses. 

The monthly changes in payrolls can be extremely volatile, due to their high relation with economic policy decisions made by the US Federal Reserve. The number is also subject to strong reviews in the upcoming months, and those reviews also tend to trigger volatility in the forex board. 

Generally speaking, a high reading is seen as positive (or bullish) for the US Dollar, while a low reading is seen as negative (or bearish), although the previous month's reviews and the Unemployment Rate are as relevant as the headline figure.