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Why US Could Miss NFP Friday?

October 5, 2023
Frank Cabibi

Unemployment claims reported higher than last month but lower than expectations this morning. This report was not a clear sign of market sentiment as results came out mixed. As yields continue to drop on the day, let's look at some setups going into tomorrow's NFP.

EdgeFinder Analysis

USDCHF is one of the strongest readings on the EdgeFinder today. At +6, the USD is beating CHF in almost every category except retail sentiment. The seasonality section points to another positive month as the most bullish for the pair.

COT positioning was less telling this week since net change moved negative for both pairs. So, the scanner then picks which currency has a higher net long position which the USD wins. Tomorrow's NFP will be pivotal in the dollar's direction as analysts are expecting a lower number of jobs added from last month. Lower NFP could suggest weakness in the dollar as it may indicate easing from the Fed.

USDCAD is still bullish on the EdgeFinder after price breaks higher above a long term falling trend line. Even as yields drop again, this pair seems to be moving higher due to weakness in the oil market. Canada's economy depends on oil's strength which has been experiencing price drops.

Tomorrow's NFP report will cause further volatility in this pair. The Fed wants the job market to comply with rising interest, but last month's report beat expectations. However, NFP has fallen since June suggesting that it will likely continue lower, but it depends on tomorrow's figures.

As we all know, gold has been performing extremely bearish for the past couple of weeks. Price has broken significant levels of support and continues to move lower. The EdgeFinder still ranks the metal in the bearish zone as the next few months of performance are expected to go lower.

The labor market is helping to keep gold away from a strong bear reading, as well as GDP growth. What we have seen are lower GDP and NFP since June, which is more optimistic for the metal and bearish on the dollar. With that said, a lower NFP will probably be a bullish sign for gold and bearish for dollar.

Retail Sentiment

Retail is still largely short USD and long gold. They have kept this position for some time against the trend of every USD asset on here. However, after discussing NFP numbers, they may be right if it comes out lower than expected. ADP and UE claims have suggested lower figures tomorrow.

Smart Money Spotlight

What we can gather from the latest COT report is that smart money is growing in the number of short contracts over time. From the net weekly change to the positional bias, it seems that institutions are more optimistic for the dollar than they are the metal.

Fundamental Spotlight

Here is the labor study on gold in reference to the US jobs market. As we can see, a higher NFP number has a negative effect on the metal. Although this data is from last month, the scanner kept its bearish reading up until the next one. Unemployment ticked higher (+1) and jobless claims were basically unchanged (0).

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