width=199Release: US Employment Change (Jan) Consensus Forecast: 150K Previous: 200K Date/Time: 02/03/12 8:30AM ET (13:30 GMT)
Release: Unemployment Rate (Jan) Consensus Forecast: 8.5% Previous: 8.5% Date/Time: 02/03/12 8:30AM ET (13:30 GMT)

Key to end this week will be Friday's non-farm payroll data. December's 200K gain was a big boost to the idea that momentum in the US economy is maintaining, if not building on itself, even if temporarily. About 40-50K jobs last month were couriers hired by UPS and FedEx, so the forecast is for around 150K jobs to be created in January as the pace of job gains should remain around the levels of December minus those courier jobs.

From Bloomberg: Employment grew by 150,000 after rising by 200,000 in December, according to the median forecast of 68 economists surveyed by Bloomberg News. The jobless rate may have held at an almost three-year low of 8.5 percent. Other reports may show manufacturing accelerated this month and consumer confidence picked up.

The Labor Department's jobs report is due Feb. 3. Payroll estimates in the Bloomberg survey ranged from increases of 100,000 to 225,000.

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That is a good enough number to keep the momentum in the US economy going. The labor market is the key to the US recovery, and if the private sector hires more people, that can reinforce a positive feedback loop that would be good for growth.

A better than expected reading can give risk sentiment a pop, benefiting higher yielding currencies at the expense of the US dollar and Japanese Yen. A disappointing figure would help risk aversion as any signs of slowdown in the US would increase concerns about the drag on the global economy.

ADP and Jobless Claims

Looking at the other labor market indicators that came out this prior to the NFP, we see that the ADP employment change fell back from its very steep 300K reading in December, down to 180K in January.

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The ADP report has both undershot and overshot the NFP reading for the same month with the last 2 months, the ADP coming in with a higher figure. That sits well with the consensus forecast of around 150K expected from the NFP.

Jobless claims meanwhile came in better than expected, with claims falling to 367K, compared to the previous weeks' 379K.

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This indicator has become more volatile of late, but if we look at the 4-week moving average (red line in above chart) we see that the downtrend in that sub-gauge continues its downward path - a positive sign that the US labor market continues to heal, and should be consistent with private sector job growth we saw in December.

S&P Consolidates Gains Prior to NFP

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Looking at the S&P500 futures chart we continue to see the equities rallying, holding the gains above the 1292 level, our highs from back in October, though this week has presented some consolidation. The index is also approaching some further key level of resistance to the topside, mainly the highs from late June near 1343.50.

The NFP report therefore can be key to extending this rally on a better than expected jobs figure - which should add pressure to the USD and JPY from a risk sentiment (risk-on/risk-off) perspective.

At the same time, its likely not going to be able to change the underlying assumption that the Fed will keep interest rates low for the next 3 years, and is preparing to act with more QE if needed in the next 2 quarter. A very strong jobs report, could knock back those expectations slightly, which would actually benefit the USD from a monetary policy dynamic.

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Nick Nasad is an analyst, educator, and trader; and one of the main contributors to  FXTimes - provider of Forex News, Analysis, Education, Videos, Charts, and other trading resources.