Something is Wrong with the Market – NFP is Scaring Everyone!!

Something is wrong with the market. What do I mean by that? Well, let’s examine the market over the last couple of days. We've seen a decrease in momentum and an increase in volatility. So, what does that mean in simple terms? Basically, it means that any move the market is making isn't sustainable at this point in time. But why? If there were major data releases scheduled for this week, shouldn't the market at least show some direction?

Yes, if we think about it that way, you're completely right. However, we can't forget that there is a major event on the agenda for release today – the well-known and highly anticipated Non-Farm Payrolls report. This is what the market is expecting, and I can tell you folks, for sure, we will see an increase in momentum and more volatility in the market to come.

Economic Calendar USA  

So, what am I expecting from the NFP tonight? Before we analyse the actual NFP, we need to understand some key points to provide a comprehensive answer on what to expect.

Let’s remember what the Fed Chair Jerome Powell said yesterday during the FOMC speech. One thing that made the market's jaw drop was that he didn’t give proper attention to assessing the strong US activity data or, particularly, the high inflation data. Instead, he kept mentioning that it would take longer for the Fed to cut rates. Well, this was already well-known prior to the FOMC speech. The market is expecting only one or no cuts for this year, as the CME FedWatch Tool has been indicating, and I’ve mentioned numerous times already in blogs and on my Telegram Channel.

CME FedWatch Tool – November (the only cut expected by the market)  

If, for some reason, you don’t have time to watch or read the Fed statement, you don’t have to worry as I’ve summarized everything you need to know in my latest blog post here: https://acy.com.au/en/market-news/market-analysis/a-closer-look-at-the-latest-fomc-statement-key-takeaways-and-analysis-l-s-123647/

That said, we saw the dollar react very bearishly to these comments by the Fed Chair Jerome Powell. Furthermore, Powell also commented that a rate hike is unlikely to happen, and that this week's JOLTs job openings showed that the restrictive policy was working its way.

USDIndex H4 Chart  

The forecasted NFP for today is at 243k, with the unemployment rate forecasted to remain at 3.08%, meaning no changes are expected. The same goes for average hourly earnings at 0.3%. My take is that we will probably see some mixed data coming from the US but leaning positive for the USD, causing EURUSD to decline, and USDIndex most probably breaking the 106.530 level.

So, I will be taking a step back. Since the Fed is saying one thing while the market is expecting another, and we don’t have clarity on what to expect, I will wait until the data release and consider any short positions on EURUSD next week only.

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