January NFP Review

The Good, The Bad & The (Not So) Ugly

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Despite initial weakness in response to the January FOMC meeting last week, where the Fed struck a more dovish tone, USD was able to stage a recovery late in the week.

This came as the January Non-Farm Payrolls report rang in stronger than expected.

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The January NFP printed 304k, almost double the 165k forecast by the market, bringing the 4-month average to 250k.

Alongside this, average hourly earnings (annualized) remained unchanged at 3.2%, with both sets of data suggesting that the 35-day government shutdown did not negatively impact labor market conditions.

Wage Growth Stalled

The report wasn’t all good news, however, with the month on month wages data rising just 0.1%, its weakest growth rate since February 2018.

However, with annual wage growth still above 3%, a bounce back next month should push the yearly reading up to around 3.5%. Indeed, other survey data sets suggest that labor shortages exist and compensation is increasing consequently.

Fed’s Beige Bok Highlights Labour Shortages

The Fed’s own January Beige Book said:

“Wages grew throughout the country… across skill levels, and numerous districts highlighted rising entry-level wages, as firms sought to attract and retain workers and as new minimum wage laws came into effect.”

This echoes the report by the NFIB published in January which showed that more than a third of small businesses are struggling to fill vacancies and are planning to increase compensation levels to new record highs.

Indeed, the increase in pay is certainly bringing fresh blood back into the workforce. The labor participation rate in January jumped to 62.3%, its strongest level since August 2013.

This helps offset the 0.1% increase in the unemployment rate last month, now back up to 4% from 3% prior.

Fed Could Raise Rates Again In Summer

In all, the data was positive, which shows that labor market conditions remain solid in the US.

The current pause in the Fed’s hiking program has been met with disappointment by bulls. However, if data sets continue to show resilience, there may be a case for the Fed to return to its hiking program as early as the summer.

This is especially true if wage growth can bounce back next month and start to feed back into inflationary pressures, bringing CPI higher, and if headlines around the US/China trade negotiations continue to improve.

Technical Perspective


The recent rollover in USD failed to see price break down below the 95.07 which, for now, has acted as support, and helped price potentially create a higher low, suggesting another rotation higher back towards the 96.91 level.

Until either of these levels is meaningfully broken, price is likely to remain in consolidation mode while the market awaits fresh directional catalysts.

If price breaks lower from here, the next level to watch is the 93.36 level where we have good structural support at a raft of prior swing lows. Meanwhile to the topside, a break back above the 2018 highs will bring the key psychological level of 100 into play.

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