Dollar fluctuating as the NFP report approaches

The euro opened down in Friday’s European session, while the pound opened up. The British pound gained 57 pips against the US dollar to reach 1.3096 after the publication of UK data. The UK’s service sector saw some sharp growth in October, exceeding expectations.

At the time of writing, the pound/dollar pair is trading at 1.3089. The closest resistance is located at 1.3130 (upper boundary of the consolidation zone from the 2nd of November). The next resistance is at 1.3190.

Taking its cue from the euro/pound cross, the single currency dropped against the greenback from 1.1668 to 1.1639 (-29 pips). This drop has been halted now as market participants await the release of the US’s Nonfarm Payrolls report.

The market expects to find that 310,000 new jobs were created in the US in October. The forecast hasn’t been this high in a long time. The NFP report showed 292,000 new jobs in January, 2016, but the forecast had been 200,000. 500,000 new jobs were forecast for May, 2010, but the actual value was 431,000. It’s likely that this high forecast is connected to the hurricanes that have recently devastated the US.

The NFP report has a strong influence on currency markets. After its publication, currency rates are swept from their place and can move several dozen pips in the space of a few seconds, which increases volatility. The spread between Bid and Ask prices also widens. This is essential to know, and one should not be surprised at inconsistency, or slippage on stop orders, when the report comes out.

Aside from the NFP report, some other important indicators include the workforce participation rate and average earnings. When these indicators decline, so does the dollar, and the dollar rises when they rise. For the Fed to increase interest rates, they want to see steady growth in consumer inflation and earnings. As a leading indicator, earnings are more important.

European data:

  • UK: Markit services PMI – 55.6 (forecast: 53.3, previous: 53.6).

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