FOMC Fallout: How Will Friday’s NFP Data Shift Trader Sentiments?

On the heels of yesterday's hawkish FOMC meeting, will this Friday’s NFP matter for traders?  Read our article to find out. 
 

The US central bank delivers a hawkish bias 

Few, if any, expected a rate change at last evening's FOMC rate meeting. Instead, the market focused on the March 2024 rate meeting in 48 days. Just one month ago, the market was pricing in a rate cut of 25 bps with a 73% probability in March, and two days ago, the exact likelihood was at 52.8%. Today, the same figure has dropped to 35.5%. The rationale behind the change is Powell's statement that while inflation had fallen dramatically, the Fed needs more data to confirm that inflation is on track to reach its 2% inflation target. In other words, a rate cut will likely happen, but not just yet, to the disappointment of investors.  
 

Market reaction 

As for the markets, they were positioned for early rate cuts in the USA vs. the ECB (Euro) and BoE (GBP). However, the latest stance of the Fed is causing that positioning to be undone, and the Euro, GBP, NZD, and AUD have been trading lower on the news. 
 

Regarding the reaction of the market, the AUD/USD slid below its December low of 0.6524, which exposes the November 17 low of 0.6452, followed by the November 10 low of 0.6336. The fortunes of the AUD will likely only change once we trade above the 0.66 level. The AUD/USD is the most interesting pair following the news, followed by NZD/USD, exhibiting a similar pattern to AUD/USD. 
 

GBPUSD is also interesting as the price is trapped in a narrow range, as explained in our article: Pound Sterling's Tightrope: Navigating the Narrowest GBP/USD Range Since 2021. A break to this range on the NFP is on most traders’ radar.  
 

What can you expect from this month's non-farm payrolls report? 

The NFP needs to surprise the market to generate a trend shift in AUD/USD, NZD/USD, and possibly GBPUSD following a breakout from its narrow range. 
 

As for expectations, economists expect the NFP growth to decline to 187K from 216K in the prior month. I expect the NFP would need to be at 50K or below to possibly cause the AUD/USD to turn higher and break its 0.66 trend-defining level, as a low reading of 50K could force the Fed to cut rates in March, and not May as currently priced in. 
 

But how likely is it that we get such a low NFP reading? If we look at the jobless claims of the last few weeks, there are no signs that we are looking at a weak NFP report. The ADP report, published on January 31, showed job growth of 107K instead of 148K expected. The outcome is not a new low or showing that the trend has changed in the ADP time series. Also, last time in October 2023 we had a poor figure of 89K in ADP and the NFP report showed job growth of 336K; hence, weak ADP figures do not translate into weak NFPs on a month per month basis.  
 

AUDUSD technical outlook 

After a few days of sideways price action, the downtrend in AUD/USD has reemerged, and the trend will remain downwards if we trade below 0.66. I suspect traders will use a bounce in the price to turn bearish. The following support levels are the November 17 low of 0.6452 and the November 10 low of 0.6336. 
 

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