US Nonfarm Payrolls expected to rebound in November after weak October

• US Nonfarm Payrolls are set to jump by 200K in November after rising by just 12K in October.
• The United States Bureau of Labor Statistics will publish the labor data on Friday at 13:30 GMT.
• US jobs data is critical to gauging future Fed rate cuts and the US Dollar price direction.

The United States (US) Bureau of Labor Statistics (BLS) will release the high-impact Nonfarm Payrolls (NFP) data for November on Friday at 13:30 GMT. The Federal Reserve’s (Fed) future interest-rate cuts and the next direction in the US Dollar (USD) depend highly on the November jobs report.

What to expect in the next Nonfarm Payrolls report?

Economists expect the Employment Report to show that the US economy created 200,000 jobs in November, following a meagre gain of 12K in October due to distortions caused by two hurricanes and the strike at Boeing.

The Unemployment Rate (UE) is likely to edge higher to 4.2% in the same period, compared to the 4.1% reported in October.

Meanwhile, Average Hourly Earnings (AHE), a closely-watched measure of wage inflation, are seen rising by 3.9% in the year through November after a 4.0% growth in October.

The November jobs report is critical to gauging the state of the US labor market and the Fed’s easing trajectory in the coming months, especially after Fed Chairman Jerome Powell’s recent cautious stance on rate cuts.

Last month at an event in Dallas, Powell said there was no need to rush rate cuts with the economy still growing, the job market solid and inflation still above the 2% target. Meanwhile, the Fed Chief sounded optimistic about the state of the US economy at the New York Times' DealBook Summit on Wednesday.

Previewing the November employment situation report, TD Securities analysts said: “We now look for mean reversion in Nov with ~75k jobs added back to the series as the twin impacts from hurricanes/strike fade away.”

“We also expect the UE rate to rise by a tenth to 4.2%, while wage growth likely cooled to 0.2% m/m following October's outsized 0.4% increase.,” they added.

How will US November Nonfarm Payrolls affect EUR/USD?

The recent series of US economic data releases and speeches by several Fed policymakers did little to alter the market’s pricing of a 75% probability of a 25 basis points (bps) rate reduction later this month, according to CME Group's FedWatch tool.

Earlier in the week, the BLS reported that the JOLTS Job Openings rose to 7.744 million in October, surpassing the expected 7.48 million increase. 

The Automatic Data Processing (ADP) announced on Wednesday that employment in the US private sector employment grew by 146,000 jobs last month, slightly lower than the 150,000 figure that markets expected.

The disappointing ADP jobs report fuels concerns about the health of the US labor market, preparing markets for a downside surprise to Friday’s payrolls data. However, the US ADP data is generally not correlated with the official NFP data.

If the headline NFP reading shows a payroll growth below 200,000, the US Dollar could come under intense selling pressure in an immediate reaction to the data release because the figures could bolster expectations of further easing by the Fed. In such a scenario, EUR/USD could edge up toward the 1.0700 level.

Conversely, a stronger-than-expected NFP print and elevated wage inflation data could raise concerns about the prospects of future rate cuts by the Fed, providing extra legs to the USD uptrend while dragging EUR/USD back to 1.0400.

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

“EUR/USD needs a decisive break above the 21-day Simple Moving Average (SMA) at 1.0560 to extend the recovery toward the 1.0700 round level. If that level is scaled, buyers will then target the 50-day SMA at 1.0761 en route to the 200-day SMA at 1.0845.”

“However, the 14-day Relative Strength Index (RSI) is still below the 50 level, maintaining risks to the downside for the main currency pair. Technical sellers could emerge if EUR/USD fails to defend the 1.0400 level. Additional declines will challenge the November 22 low of 1.0333.”