FX.co ★ NFP will support the dollar, but only locally

On Thursday, the Strengthening the dollar slowed down despite the positive data on the US economy. Also, there was a clear fixation of profits in the market. The reason for which was not only the outcome of the Federal Reserve meeting, which did not show a signal about the number of interest rate increases this year but also, the expected publication of employment data, which will be presented today.

Moreover, the fact that the American economy feels generally good, showed the data released on Thursday. In accordance with the presented values, the index of business activity in the services sector (PMI) in April rose to 54.6 points against the March value with the same forecast of 54.4 points. At the same time, the volume of industrial orders kept the growth rate at the level of March's 1.6% last month, although it was supposed to decrease to 1.3%. The only negative from the published important data was the index of business activity in the non-manufacturing sector (PMI) from the ISM which fell to 56.8 points in April from 58.8 points and a downward forecast to 58.1 points.

The US dollar did not react to these values, both positive and negative. Instead, the market focused on two aspects. On the one hand, on the outcome of the Fed meeting, and on the other hand, on the waiting for the release of figures on employment.

According to the consensus forecast, an increase in the number of new jobs is expected to be 191,000 in April, whereas the previous value reached 103,000. The forecast range provides the probability of data from 145,000 to 255,000. The unemployment rate is projected to decline from 4.1% to 4.0%. The probable range of values from 3.9% to 4.1% is also considered.

So, how can the market react to data on the number of new jobs and the unemployment rate in the U.S.?

In our opinion, strong employment data will provide local support for the rate of the U.S. dollar, but it is unlikely to be decisive in its fate. This is due to the fact that, currently, the market and the Fed do not link the prospects of interest rates to the state of the labor market, which has already taught everyone that it feels very good. The market now has slightly different benchmarks, so the reaction to positive data is likely to be limited as it was before.

Forecast of the day:

The EUR/USD pair may fall to the level of 1.1900 on strong data from the U.S. labor market.

The GBP/USD pair, like the euro, may be under pressure amid the positive news from the U.S. on the US dollar and fall to 1.3500. But if the figures from the U.S. out to be weaker than expected, it will lead to profit taking. Then, the sterling and the euro will get support.