NFP preview: Trading S&P or GBPUSD?

  • Non-Farm Payrolls data, expected to show 200,000 new jobs, may sway market sentiment.
  • If the NFP data surpasses expectations, GBP/USD could become an attractive trade option. Conversely, in the event of a soft NFP reading, attention might shift to the S&P.

US Fed Chairman Jerome Powell has reiterated on multiple occasions that a tight labor market acts as a deterrent to lowering interest rates. Which is why this month’s NFP data release should be interesting. 

This Friday’s Non-Farm Payrolls (NFP) data is expected to show an addition of 200,000 new jobs. Since Feb 2023, data has consistently hovered between 300K and 150K. Many of these initial readings were subsequently revised downwards. Nevertheless, at the time, they significantly reduced the likelihood of Federal Reserve rate cuts and, most recently, bolstered the dollar. 

Traders anticipated ~6 rate cuts at the beginning of the year, but now will be content if the Fed reduces rates three times. However, even three rate cuts are dubious, given that most recent US data has exceeded expectations. This Monday, the ISM manufacturing index turned positive for the first time since October 2022. 

If the NFP data surpasses expectations, GBP/USD could become an attractive trade. In the event of a soft NFP reading, attention could shift to the S&P, which would have a window to rebound before major banks commence reporting their latest earnings. 

GBP/USD has remained trapped within a rectangular pattern for almost 100 days now, potentially indicating some strong boundaries to take note of for a range trade. The pair currently sits in the lower half of the range. 

The jobs data on Friday could heavily influence Wall Street’s sentiment, potentially determining whether the market remains overall bullish or requires even more of a corrective move. The 5200 level could be pivotal. It has previously acted as resistance and now functions as support. Even if a breakdown occurs below this level, support could be anticipated at the 5100 level or the 50-day SMA. 

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