U.S. Employment Report Release: Market on High Alert Amid Weak Related Indicators
Today’s focus is on the U.S. August employment report, which is the most anticipated release. It’s fresh in memory that the negative surprise in July triggered risk-off movements in the market. As a result, the market is on high alert for today’s release, and in the FX options market, the one-week volatility for USD/JPY has risen to 16%, anticipating a sharp decline in the pair.
However, weaker-than-expected results from U.S. ISM Manufacturing PMI, JOLTS job openings, and ADP private employment figures released earlier this week suggest that some degree of weakness may already be priced in. The drop in U.S. bond yields and the softening of USD/JPY indicate growing pressure on the dollar.
Nevertheless, the market could still experience significant swings depending on the results. Since the market is already cautious about weak figures, a positive surprise could have an even greater impact. The initial reaction is expected to be based on U.S. bond yields, followed by a close watch on the U.S. stock market, leading to nervous movements in the forex market.
Market Expectations:
- Unemployment rate: 4.2% (expected improvement from the previous 4.3%)
- Nonfarm payrolls: +165k (expected improvement from the previous +114k)
- Average hourly earnings: +0.3% MoM (up from +0.2% prior), +3.7% YoY (up from +3.6% prior)
Despite these expectations, caution remains high across the market due to the weak related indicators.
Speeches and Events:
Ahead of the blackout period this weekend, New York Fed President Williams and Fed Governor Waller are scheduled to speak. Regarding the September FOMC meeting, there is roughly a 40% chance of a 50bp rate cut and a 60% chance of a 25bp cut.
Other Economic Data:
Eurozone GDP (final), Canada Employment Report, and Canada Ivey PMI are also scheduled for release.
Strategy:
I agree with the market’s expectation of weak results. However, in the case of a positive surprise, I plan to look for opportunities to buy USD/JPY or sell EUR/USD. If there are significant movements, I will quickly respond to capture potential opportunities.
