NFP Forecast: US Nonfarm Payrolls expected to increase moderately in January

• US Nonfarm Payrolls are seen higher by 180K in January after December’s 216K jump.
• The US jobs report will likely impact the market pricing of the dovish Fed pivot and the US Dollar direction.
• The United States Bureau of Labor Statistics will publish the employment data at 13:30 GMT.

The highly-anticipated Nonfarm Payrolls (NFP) data from the United States (US) is due on Friday at 13:30 GMT. The US labor market report will be published by the Bureau of Labor Statistics (BLS) and is expected to have a significant influence on the US Dollar (USD) price direction.

What to expect in the next Nonfarm Payrolls report?

The Nonfarm Payrolls report is expected to show that the US economy added 180,000 jobs in the first month of 2024, down from a whopping 216,000 jobs created in December. The Unemployment Rate is seen ticking up from 3.7% in December to 3.8% in the reported period. A closely-watched measure of wage inflation, Average Hourly Earnings, is expected to rise 4.1% in the year through January, at the same pace as seen in December.

The US labor market data holds the key to gauging the timing and the pace of the US Federal Reserve (Fed) interest rate cut this year, especially after the US central bank pushed back expectations of a March rate cut following the conclusion of its two-day policy meeting on Wednesday.

The Fed left its benchmark interest rates unchanged at the 5.25% to 5.50% range for the fourth consecutive meeting on Wednesday, in line with the market expectations. The statement, however, was read as slightly hawkish, as it stated, "until it has increased confidence that inflation is moving sustainably toward 2 percent, the Committee does not anticipate it will be appropriate to lower the target range for the federal funds rate.”

During his post-policy meeting press conference, Fed Chair Jerome Powell said, "based on the meeting today, I would tell you that I don't think it is likely that the Committee will reach a level of confidence by the time of the March meeting to identify March as the time to do that [lower interest rates], but that is to be seen.”

"It is probably not the most likely case, or what we would call the base case,” Powell added.

The probability of a March Fed rate fell steeply from about 50% at the start of the week to 35% after the Fed policy announcements, according to CME Group’s FedWatch Tool. Meanwhile, markets now see a 90% chance of the Fed lowering borrowing costs in May.

Previewing January’s jobs report, TD Securities (TDS) analysts said: “As it has become customary for Januarys, we look for a strong increase in payrolls at 230k next week.”

“The NFP's annual benchmark and the update to seasonal factors will also add a wrinkle to this report,” the TDS analysts added.

Meanwhile, private sector employment in the US rose by 107,000 in January, data published by Automatic Data Processing (ADP) showed on Wednesday, below the 145,000 anticipated increase.

How will US January Nonfarm Payrolls affect EUR/USD?

The Nonfarm Payrolls, a significant indicator of the US labor market, will be published at 13:30 GMT. EUR/USD gained more than 1% in December and touched its highest level since July at 1.1140 before staging a technical correction to begin 2024. Traders gear up for a big volatility spike on the US jobs report, which could offer a fresh directional impetus to the main currency pair.

An encouraging NFP headline print, above 200,000, combined with a surprise uptick in wage inflation, could add credence to the Fed’s hawkish rhetoric, providing legs to the renewed US Dollar upside while weighing on EUR/USD. Conversely, the USD could come under renewed selling pressure should the data disappoint and reinforce March Fed rate cut bets. Following the Fed’s pushback on early rate cuts, a USD sell-off on a disappointing NFP figure could likely be short-lived.

Dhwani Mehta, Analyst at FXStreet, offers a brief technical outlook for EUR/USD: 

“EUR/USD jumped off critical support at the horizontal 100-day Simple Moving Average (SMA), then aligned at 1.0780. The rebound saw the pair break through the key 200-day SMA at 1.0840. Despite the sharp upswing, the 14-day Relative Strength Index (RSI) remains below the 50 level, warranting caution for buyers.”

On the upside, EUR/USD buyers need a daily closing above the 21-day SMA at 1.0891 to sustain the upside. The next relevant topside barrier is envisioned at the 50-day SMA near 1.0920, above which a test of the 1.0950 psychological level cannot be ruled out. Any retracement in the pair could retest the 200-day SMA resistance-turned-support. Meanwhile, 100-day SMA could be the last line of defense for buyers.”