NFP data: the dollar may be under pressure

Even though the US labor market is in excellent shape, Friday's data may pose a threat to the dollar. The Fed on Wednesday did not raise the rate, leaving the parameters of monetary policy unchanged. But more importantly, the Central Bank stressed that the inflation target was achieved. That is, the Fed could almost perfectly balance the economic system. Accordingly, any sudden movements can rock the boat. Thus, the Central Bank will think more than once or twice before breaking this equilibrium. In this regard, we do not expect the growth of aggression in the process of tightening monetary policy, and even on the contrary, one can expect a prolonged pause.

Since the labor market is one of the main barometers of the economy, the Fed, of course, will pay double attention to the rate of unemployment and NFP. But specifically, in the current situation, good data is likely not to affect the position of the Fed (the system is in equilibrium), but weak data can disturb the regulator and lead to a sharp ease of the Central Bank rhetoric. That is, we have a kind of asymmetric situation, when the dollar at best will not receive special support from the data, and at worst - will be sold out.

Given that the technical correction of the dollar is ripe, there are reasons to believe that the probability that the dollar will be sold out is higher than the probability of its growth.

Recall, traditionally on the first Friday of the month a block of statistics on the US labor market is published (see the table below).
Prev Exp
15:30 USD Non-farm payrolls( February) 103K 192K
15:30 USD Average hourly earnings (m/m) (February) 0.3% 0.2%
15:30 USA Unemployment rate (February) 4.1 % 4.0 %


One more cause for concern, in our view, is the past data on the NFP. Last month, with the forecast of 193K, the figure was only 103K (almost 50% worse than expected). If the situation recurs and the markets do not see the expected figures in the 200K area, the dollar will receive a trigger for massive sales.

We believe that the dollar is now vulnerable and is in a situation where the data are unlikely to provoke a wave of its purchases and the continuation of growth and, at best, will be perceived neutrally if they go beyond or above forecasts, and at worst if they are below expectations analysts, will almost certainly provoke a downward movement. Recall that in the case of a strong overbought, the mechanism for generating sales waves is as follows: weak data provokes a part of the bulls to fix profits (and there is a lot of to be fixed for the case of dollar), this leads to the dollar decline, which in turn leads to execution of stops for those buyers who made purchases on top (execution of stops means a massive close of long purchases, which occurs in the form of counter-deals, that is, sales). Stops execution accelerates the sales wave. Approximately at this moment oscillatory signals are formed, and trading robots begin to be reverse into sales in order to work out both oscillatory and reversal signals. As a result, we have a sharp decline in this case, the dollar.

Thus, our recommendation for today is the sale of the dollar, while it is still very high. The most aggressive traders can do this even before the release of the data, because after the publication of statistics it can be hard to enter the market at adequate prices.