Crucial NFP print the main event for the day

Without a doubt the main attraction for today is the US employment report for February. Last month’s blowout report nudged a large portion of the market to reassess their hyper optimistic bets for a Fed pivot. Fed Chair Powell’s speech on Tuesday has now shifted the balance of power, as his comments opened the door for a hike of larger magnitude in the upcoming March meeting. According to forecasts the market expects the Non-Farm Payrolls figure to ease to 205k this month, following the incredulous 517k newly created jobs in the month of January. Should the actual figure match the expectations we may see the dollar weaken. Worth pointing out nonetheless, is that the 205k employment figure expectation falls in line with historical averages, implying that the US labour market remains robust and showcases its ability to stand strong amidst a high interest rate environment. Turning our attention towards the unemployment rate expectation, the market consensus sees the rate holding steady at 3.4%, near five-decade lows, which validates the view for a resilient US employment force.

In regards to the year-on-year average hourly earnings rate, the market forecasts an acceleration of the rate to the 4.7% from the 4.4%, and should that be the case that would practically reaffirm that inflationary pressures pose a systemic risk in the US economy. Overall, the results are expected to provide support in the Fed’s case for pressing on with more rate hikes and of larger magnitude, since the employment market has yet to show any cracks, allowing the central bank to focus solely at keeping the inflationary monster under control. Should we see the NFP figure exceed expectations, that would reinforce the view for a hawkish policy response from the Fed, whereas on the flip side should NFP slump below expectations, that might create doubt in the eyes of investors in regards to a 50-basis point hike scenario. Yesterday’s initial jobless claims figure climbed to 211k, beating the 195k expectation and bond yields relented some ground from their prior ascend. Canada’s employment report is also due out today, yet is expected to be overshadowed by US NFP report.

Nevertheless, Loonie traders will be looking closely at the results which could give insights to CAD’s future, now that BOC decided to pause its tightening cycle. Canada’s employment change for February is expected to slacken according to forecasts, with the market consensus eyeing a mere 10k new job openings in contrast to the 150k reading of the prior month. Should the actual reading match the expectation we may see CAD facing pressure, extending its fall towards four-month low levels. Unemployment rate expected to rise from 5.0% to 5.1% which could add more pressure to the Loonie. Worth mentioning however, is that the rate remains below historical averages or at least near the same levels. No surprises arose from BOJ’s Governor Kuroda’s last meeting at the helm. The bank kept ultra-loose monetary policy stance unchanged and no tweaks of the YCC were made, leaving the Yen exposed for further devaluation.

USDIndex eased towards the 105.20 (S1) support base ahead of today’s crucial NFP report. We hold a bullish bias for the index yet we note the results of the NFP can create volatility depending on the outcome. Should the bulls reign, we may see the break of 106.80 (R1) level and the move closer to 107.70 (R2) level. Should the bears take over, we may see the break below 105.20 (S1) and the move near 104.10 (S2) level. USD/JPY is confined between R1 and S1 levels after the break below the ascending trendline. We hold a sideways bias for pair but we note the NFP results could distort the picture. Should the bears reign, we may see the break below 135.50 (S1) and the move towards 134.00 (S2). Should bulls take over, we may see break above 138.00 (R1) and the move towards 139.40 (R2)

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We would also like to note Norway’s and Czech Republics’ year on year CPI rates for February alongside UK’s yoy GDP rate for January alongside the Final yoy HICP print from Germany.