Learn To Trade
Indicators & Chart Patterns

Deepen your knowledge of technical analysis indicators and hone your skills as a trader.

Find your detailed guides here
Trading Glossary

From beginners to experts, all traders need to know a wide range of technical terms. Let us be your guide.

Learn more
Knowledge Base

No matter your experience level, download our free trading guides and develop your skills.

Learn more
Learn To Trade

Trade smarter: boost your skills with our training resources.

Create a live account
Market Analysis
Market News

All the latest market news, with regular insights and analysis from our in-house experts

Learn more
Economic Calendar

Make sure you are ahead of every market move with our constantly updated economic calendar.

Learn more
Technical Analysis

Harness past market data to forecast price direction and anticipate market moves.

Learn more
Live Webinars

Boost your knowledge with our live, interactive webinars delivered by industry experts.

Register now
Special Reports

Engaging, in-depth macroeconomic analysis and expert educational content from our in-house analysts

Learn more
Market Analysis

Harness the market intelligence you need to build your trading strategies.

Create a live account
Affiliate Programme

Grow your business and get rewarded. Find out more about our Affiliate Programme today.

Learn more

Invest or become a money manager, enjoy a mutually beneficial partnership.

Learn more
Introducing Broker

ThinkMarkets ensures high levels of client satisfaction with high client retention and conversion rates.

Learn more
Proprietary Trading

Partner with us to build your own prop trading business. Enquire with our account managers today.

Learn more
White Label

We supply everything you need to create your own brand in the Forex industry.

Learn more
Regional Representatives

Partner with ThinkMarkets today to access full consulting services, promotional materials and your own budgets.

Learn more

Plug into the next-gen platforms and the trades your clients want.

Partner Portal
About ThinkMarkets

Check out our sponsorships with global institutions and athletes, built on shared values of excellence.

Learn more
About Us

Find out more about ThinkMarkets, an established, multi-award winning global broker you can trust.

Learn more

Discover a range of rewarding career possibilities across the globe

Apply now
ThinkMarkets News

Keep up to date with our latest company news and announcements

Learn more
Trading Infrastructure

When it comes to the speed we execute your trades, no expense is spared. Find out more.

Learn more
Contact Us

Our multilingual support team is here for you 24/7.

Learn more
About ThinkMarkets

Global presence, local expertise - find out what sets us apart.

Create a live account
Create account

Friday's NFP data is final piece of Fed's June rate hike puzzle

Carl Capolingua Carl Capolingua 31/05/2023
Friday's NFP data is final piece of Fed's June rate hike puzzle Friday's NFP data is final piece of Fed's June rate hike puzzle
Friday's NFP data is final piece of Fed's June rate hike puzzle Carl Capolingua

Download Carl's Bear Market Survival Guide e-Book:

The first Friday of the month is always a special occasion for forex traders as the US Bureau of Labor Statistics releases their Non-Farms Payroll report, or NFP for short. The NFP is widely considered by traders as the most important monthly data release on the forex calendar.

Reports such as this week's NFP take on increased importance because they fall just days before what traders expect will be a "live" FOMC meeting on 14 June. A FOMC meeting is considered live if the market is predicting at least a moderate probability of a change in interest rates.

Data from the CME confirms just how live the June meeting is. According to pricing in the 30-Day Fed Funds futures, CME suggests that the market is factoring a 64.2% probability of a 0.25% hike by the Fed to its official cash rate on 14 June. This compares to a 35.8% probability of a pause, and zero percent probability of a cut. 

may_30_fed probabilities
CME FedWatch probabilities as at May 30

It wasn't very long-ago markets believed a hike in June was unlikely and were even hoping for a cut by September. Compare the above graphic with that of 7 May, below. This shows how the market was placed just after the last NFP release. It is stark evidence as to how quickly and dramatically expectations of the path of official US rates have swung through May. 

may 7 fed probabilities
CME FedWatch probabilities as at May 7

A June pause went from a 91.5% near-certainty as at 7 May, to only a minor chance today. Note also how the possibility of the first rate cut in nearly two years was the odds-on favorite for September (i.e., 51% probability vs 23.3% pause and 1.7% hike), but has now slumped to almost completely off the table at just a 7.4% chance.

Indeed, markets have pushed back the possibility of the first rate cut to no earlier than December, but more likely not until January or even March next year.

What to expect from Friday's NFP Report

So, what can we expect from Friday's NFP Report? Economists are expecting a slowdown in hiring within the US economy during the month of May. The number of new jobs created is expected to fall from to 193,000 from 253,000 in April. 

Given the actual NFP result has beat expectations 13 months in a row, one can't be too sure just how accurate consensus numbers are. It does however demonstrate just how well the US economy is recovering from the effects of the pandemic, and how it continues to defy not only economists' expectations, but also ten consecutive rate hikes from the Fed totalling 500 basis points.

The other factor markets (and the Fed) will be watching closely Friday is the average hourly earnings data which is also released in the NFP report. The Fed is particularly sensitive to rising wages as they believe it feeds directly into inflation, and more importantly, inflation expectations. Economists are expecting Americans' pay checks rose by around 0.3% in May, a moderate easing from April's 0.5% increase. If this occurs, then annually, wages would have risen by around 4.3% in May which is steady with April's annual rate.

King dollar reigns supreme

The US dollar has been on a rampage higher against all of the majors during May. EUR, GBP, JPY, AUD, NZD, CAD, you name it, each has melted in the face of King Dollar. 

US dollar index chart USDX chart DXY chart
US dollar index – click to enlarge chart

Why? Well, it's all to do with those rate expectations we discussed earlier (plus a little bit of Debt Ceiling uncertainty mixed in!). The market has all but factored out the rate cuts which only a month ago it was near-certain we were going to get. As a result, we've seen a grind higher in US short- and long-term bond yields, and this is generally a catalyst for a strong currency in any jurisdiction. 

us 2 year treasury note yield chart
US 2-Year T-Note Yield% – click to enlarge chart

It follows, a strong NFP report will only firm the case for higher for longer at the Fed, and trigger another wave of US dollar strengthening. Watch particularly here for readings in excess of 250,000 which would be a similar margin beat compared to April's numbers.

If the NFP comes in weaker than expected, we're going to see a solid bout of profit taking in Greenback positions, but particularly in those currencies which exhibited relative strength prior to May such as the EUR and the GBP. Any NFP print in the low 100,000's would qualify here.

How to trade Friday's NFP data

us dollar vs mexican peso technical analysis chart
USDMXN exchange rate – click to enlarge chart

As a trader, I am a trend follower first and foremost. With the US dollar having been so strong for a whole month now, there are few pairs which show a bearish trend for the USD in both the short- and long-term. The peso is one of the few exceptions, as it has maintained its dominance over the Greenback during May.

Traders can back the long-term trend (dark pink ribbon) by looking to fade (short) rallies into the short-term trend zone (light pink ribbon). If Friday's NFP comes in weaker than expected, the immediate target for the USDMXN is to the 15 May low of 17.42. This is a very important level. If you zoom out, you will see it also coincides with the major low of 17.45 from July 2017. 

A break of such an important level could see a greater move lower to test support on the monthly chart around 15.54.

australian dollar vs us dollar chart
AUDUSD exchange rate – click to enlarge chart

On the other hand, there's no shortage of candidates to trade if the NFP report comes in stronger than expected. Take your pick from any of the majors which have all done dismally against the Greenback over the past month. 

But, if you want to find a currency which was also struggling against the US dollar prior to May, then the AUD is likely your top pick. As a commodity currency, the AUD is floundering against sharply weaker metals and energy prices whose markets have responded negatively to progressively weaker Chinese economic data.

A NFP result which triggers further buying in the Greenback could really crack the AUDUSD's prevailing short- and long-term trends wide open. Here, traders have a full house of downward sloping trend ribbons, negative price action (i.e., lower peaks and lower troughs) and a predominance of black candles. The 13 October 2022 low of 0.6169 is a clear downside target, with possible some minor support at 0.6270.

Learn More, Earn More!

Want your portfolio questions answered? Register for next week's Live Market Analysis sessions and attend live! You can ask me about any stock, index, commodity, forex pair, or cryptocurrency you're interested in.

REGISTER: Live Market Analysis Webinars - Thursdays 1pm AEST / Wednesdays 3am GMT, Friday 12pm AEST / Thursdays 2am GMT

You can catch the replay of the last episode of Live Market Analysis here:
Iron Ore, Copper, Nickel plunge on China & Debt Ceiling Fears, Lithium holding for now
Any opinions, news, research, analyses, prices or other information contained on this website is provided as general market commentary and does not constitute investment advice. ThinkMarkets will not accept liability for any loss or damage including, without limitation, to any loss of profit which may arise directly or indirectly from use of or reliance on such information.
Any opinions, news, research, analyses, prices or other information contained on this website is provided as general market commentary and does not constitute investment advice. ThinkMarkets will not accept liability for any loss or damage including, without limitation, to any loss of profit which may arise directly or indirectly from use of or reliance on such information.
Back to top