US30 – US jobs report eyed as Fed seeks evidence of cooling labour market

• US jobs report to set the tone
• ADP an unreliable precursor
• US30 steadies around key support

Equity markets are edging higher ahead of the US jobs report on Friday, a release that could set the tone in the markets ahead of next month’s Fed meeting.

While price pressures are ultimately what the Fed is primarily interested in, there is clearly a view on the FOMC that sustainable 2% inflation is not possible without cooling the labor market. Time will tell how accurate an assumption that is but in the interim, there will be enormous focus on jobs data for signs of cracks appearing that can offer the central bank the comfort it craves.

The ADP report on Wednesday indicated we could be looking at a weaker NFP today but let’s face it, it’s been a long time since anyone looked to ADP for a reliable insight into the jobs report. If we do see a repeat, it may help to ease some of the anxiety we’ve seen in the markets in recent weeks.

We’ve been flooded with higher for longer central bankers, determined to get every last drop out of their rate hikes. While I’m still of the view that the plan at the Fed has always been and remains to pivot very late and maintain this hawkish rhetoric until then, investors are seemingly now less sure and are relying on the data to pull them back in.

Paring losses ahead of data 

The US30 has pared losses over the last couple of sessions but remains not far from its recent lows ahead of the jobs data.

US30 Daily

Source – OANDA on Trading View

We’ve seen support around these levels on a number of occasions over the last year so it’s perhaps not surprising to be seeing the same again. A break below would be a very bearish development and suggest markets are anticipating another rate hike from the Fed on the back of the data.

A rebound higher could be interesting, especially if backed by a sufficiently weak jobs report. The tentativeness of the recovery could be key, with the first major test of resistance potentially falling around 34,000 from the 200/233-day simple moving average band and 38.2% Fibonacci retracement level. Assuming it rebounds that far, of course.

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