This is how top-tier US jobs report can shift the markets

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  • US jobs report likely to inform inflation narrative, US Dollar and Gold price.
  • If the labor market is strong, the Federal Reserve could plough ahead with larger rate hikes. 
  • Gold price could continue south if a strong result solidifies expectations of a 0.5% rate hike in March.

Gold price has been in a downward spiral since the start of February, and with the next major release for the commodity likely to be the US Bureau of Labor Statistics US jobs report for February, scheduled for release on Friday, March 10, traders may be wondering whether this will continue. 

The impact of Nonfarm Payrolls (NFP) on Gold will depend on whether the labor data influences current elevated inflation expectations. 

Gold price took a leg lower on Tuesday after comments by the Chairman of the Federal Reserve (Fed) showed he thought interest rates would have to rise in bigger steps to combat persistent inflation. Powell’s comments strengthened the US Dollar, since it benefits from higher US interest rates via the ‘carry trade’, a type of trade in which global investors move money around to jurisdictions where they can earn the most interest. Since Gold is priced in USD, it tends to fall when the US Dollar strengthens, which is why it weakened. US Treasury bonds also fell (their yields rose) and currently Gold price tends to go the same way as bonds. 

Data from China at the start of the week – Gold’s biggest market – suggesting demand was softening also didn’t help the precious metal. 

How will Gold price react to the US jobs report figures?

The US jobs report, scheduled to be released at 13:30 GMT, could provide important information, either confirming or tempering Powell’s hawkish comments. This is because the more people there are in employment, earning and spending money, the more likely inflation is to rise. As such, the headline Nonfarm Payrolls number could influence whether Gold’s downtrend makes further headway or not. A result that implies inflation will remain high will be negative for Gold and vice versa for the opposite.

Economists expect the NFP to show an average-level 205K jobs were added to the economy in February. 

If the actual print is substantially higher – say by a margin of 50K or more – it will reinforce Powell’s fears about high inflation. This will increase expectations the Federal Reserve will raise interest rates more aggressively, further strengthening the US Dollar, and causing Gold price to depreciate. 

If the print is substantially lower by a similar margin, it will have the opposite effect and enable Gold price to recover.

In truth, market expectations are already quite elevated that the Fed will raise interest rates by a bigger 0.50% hike at the meeting on March 22, rather than the 0.25% previously expected. 

A market-based tool for gauging probabilities for different rate hikes, the CME FedWatch tool, places a 79% probability of a 0.50% hike, at the time of writing. This has increased from only 31% a week ago, before Powell’s speech. Therefore, one might argue there isn’t that much upside left, and perhaps more opportunity to the downside.

There are some other things to consider regarding the US jobs report:

  • Nonfarm Payrolls in January showed a bumper 517K increase and this may get revised, probably down. 
  • Average Hourly Earnings are another important figure within the report since they are a key driver of inflation. They are expected to show a rise of 0.3%, the same as last month. The metric has not fallen beneath 0.3% for over a year, therefore if it were to fall below this key threshold, to say 0.2%, for example, it might dampen inflation expectations and provide relief to the Gold price. 
  • Unemployment Rate is another significant data point in the report. In January it fell to a post-covid record low of 3.4% and economists expect it to remain at that level in February.
  • Labor Force Participation Rate – the percentage of working age people participating in the economy – is at a multi-year high of 62.4% and economists estimate it will fall to 62.3%. A fall in participation can take the edge of gains in other areas of the labor market.

From a technical perspective, Gold price appears to have reversed the steady-eddy uptrend that started in November 2022 and peaked at $1,960 on February 2. 

 

XAU/USD Daily Chart 

Since then it has been going down and is now in a concerted short-term downtrend, with a bias that favors bears. 

There are, however, significant support levels standing in the way of further declines. Both the 50 and 100-week Simple Moving Averages (SMAs) lie just below last week’s lows at $1,804 and the 100-day SMA is at the same level. These provide a triple lock of formidable SMAs acting as a hard floor under price, which is currently consolidating at $1,817. 

 

XAU/USD Weekly Chart

Only a clear break and close below them – confirmed by a daily close below $1,790 would provide confirmation of a break and continuation of the downtrend. RSI is currently showing a lack of underlying strength in the last sell-off following Powell’s comments, so more downside may be hard work for bears. 

If a successful break does occur the next downside target would probably be at the 100% extrapolation of the recent decline to a target at $1,864, followed by the 0.618 Fibonacci retracement of the uptrend from November 2022 to February 2023, at $1,748.

A surprise rebound from a negative Nonfarm Payrolls number, for example, might see Gold price recover to the March 6 highs at $1,864 again, reversing all of the Powell downfall, at retesting resistance at that level. 

US jobs report related content

About the US jobs report

The United States jobs report is released by the US Department of Labor, usually on the first Friday of every month. Along with other figures, the report presents the number of new jobs created during the previous month, in all non-agricultural business. 

The monthly changes in the jobs added or lost can be extremely volatile, due to its high relation with economic policy decisions made by the US Federal Reserve. The number is also subject to strong reviews in the upcoming months, and those reviews also tend to trigger volatility across currencies and other financial markets. 

Generally speaking, a high reading in the Nonfarm Payrolls headline number is seen as positive (or bullish) for the US Dollar, while a low reading is seen as negative (or bearish). That said, the previous month’s reviews and other indicators like the Unemployment Rate can sometimes be as relevant as the headline figure.
 

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