EUR/USD: U.S. Non Farm Payrolls Preview

 | Jun 01, 2018 10:58

Once again we come to the key data release in the US, which in the current climate sees focus on earnings growth as inflation finally starts to pick up.

So far, higher inflation levels are somewhat simplistically firming up short end rates, which is proving to be a stronger driver in FX, though in fairness, we have seen little fresh curve flattening, which has allayed fears of the next recession coming in quicker than previously anticipated.

From here though, we look to what impact higher inflation and indeed higher interest rates will have on disposable incomes and the real economy, so merely looking to continued headline job gains will not be enough to firm up the shorter term rate outlook which the Fed are keeping at 3 rate hikes in total for 2018.

The yearly hourly earnings rate dipped to 2.6% last month, and the forecasters are looking for this to return to 2.7% this time round, prompted by a 0.2% gain in May vs 0.1% in Apr.

As for the jobs total, the range of expectations lie inside 160-210k for the most part, but with the economy nearing full employment and anecdotal evidence that skilled workers are hard to come by, we sense there may be a greater risk to the downside on these expectations, but anything north of 150k will unlikely hurt the USD over the near term. Consensus is for circa 190k, so the immediate reaction will feed off this, but wage growth is all the more important now, with Fed members being frequently questioned about a possible inflation overshoot.

h3 EUR/USD 4H Chart/h3