Non-Farm Payrolls beat; What will the Fed think?

According to the Non-Farm Payrolls report, the US added 390,000 jobs to the economy in May vs an expectation of +325,000 and a slightly higher revised print to 436,000 for April. The Unemployment Rate was unchanged at 3.6% vs 3.5% expected. Average hourly earnings were also unchanged at 0.3% MoM vs and expectation of 0.4%. The Fed should be happy with this data as jobs are still increasing, yet wages seem to be plateauing. However, this may also make the Fed feel more emboldened to hike rates by more than expected in the near future due to the confirmed tightness in the labor markets. Fed Chairman Powell has said recently that the Fed is willing to get inflation down at the expense of the 3.6% Unemployment Rate. Does this mean that good news on the job front is bad news for the markets?

What are Non-Farm payrolls?

The US Dollar went bid on the data release and the DXY moved from 101.92 to 102.19. Traders initially felt that “good news is bad” as the better headline data and unchanged average hourly earnings were the perfect storm for the Fed.

Source: Tradingview, Stone X

Trade the DXY now: Login or Open a new account!

• Open an account in the UK
• Open an account in Australia
• Open an account in Singapore

On a daily timeframe, USD/JPY had been moving higher in parallel with US 10-year yields into the most recent high on May 9^th at 131.34. The current correlation coefficient between USD/JPY and US 10-year yields is +0.92. Readings above +0.80 are considered strong. USD/JPY then pulled back in a descending wedge formation as the RSI began diverging with price in overbought territory. The pair reached a near-term low of 126.36 on May 24^th. On Tuesday, USD/JPY began moving higher once again and broke out of the descending wedge pattern. The target for the breakout of a descending wedge is a 100% retracement, which in this case is 131.34.

Source: Tradimgview, Stone X

Trade USD/JPY now: Login or Open a new account!

• Open an account in the UK
• Open an account in Australia
• Open an account in Singapore

On a 240-minute timeframe, USD/JPY paused briefly at the psychological round number resistance level OF 130.00. However, after the NFP release, the pair (and US yields) continued its move higher. First resistance is at the May 9^th high of 131.34. Above there is horizontal resistance dating to 2002 at 131.84 and then the 127.2% Fibonacci extension from the high of May 9^th to the low of May 24^th, near 132.70. However, notice the RSI is in overbought territory once again, an indication that price may be ready for a correction. If USD/JPY pulls back, first support is the psychological round number at 130.00. Below there, price can fall to horizontal support at 128.30, then additional horizontal support at 127.58.

Source: Tradimgview, Stone X

Today’s headline NFP print and average hourly earnings data should make the Fed happy. More jobs and lower wage growth: What’s not to like? However, one has to consider that the Fed may feel more emboldened to raise rates with the confirmation of a tight labor market. Watch the US 10-year yield for clues as to where USD/JPY may be headed next.

Learn more about forex trading opportunities.

StoneX Financial Ltd (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 69% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. CFD and Forex Trading are leveraged products and your capital is at risk. They may not be suitable for everyone. Please ensure you fully understand the risks involved by reading our full risk warning.

City Index is a trading name of StoneX Financial Ltd. Head and Registered Office: 1st Floor, Moor House, 120 London Wall, London, EC2Y 5ET. StoneX Financial Ltd is a company registered in England and Wales, number: 05616586. Authorised and regulated by the Financial Conduct Authority. FCA Register Number: 446717.

City Index is a trademark of StoneX Financial Ltd.

The information on this website is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement.