US Nonfarm Payrolls Forecast: Analyzing February NFP release

• Nonfarm Payrolls report is expected to show a job addition of 205,000 in February.
• US Dollar may be affected by critical data, which may show a 4.7% increase in year-over-year Average Hourly Earnings for workers.
• The Bureau of Labor Statistics is set to report an Unemployment Rate of 3.4% in February.

The Nonfarm Payrolls (NFP) data will be released by the Bureau of Labor Statistics (BLS) this Friday at 13:30 GMT. The NFP release is expected to show job gains of 205,000. However, another positive surprise cannot be ruled out, which could strengthen the renewed upside in the US Dollar (USD).

The US Dollar caught a fresh bid wave and resumed its recovery, following the hawkish comments delivered by Chairman of the Federal Reserve (Fed) Jerome Powell, in his bi-annual testimony earlier this week.

He said that “if the totality of the data were to indicate that faster tightening is warranted, we would be prepared to increase the pace of rate hikes.” He added that the "ultimate level of interest rates" is likely to be higher than previously anticipated as well. While that justifies the resurgent US Dollar demand, the further upside hinges on another strong Nonfarm Payrolls headline number.

What to expect in the next Nonfarm Payrolls report?

Friday's United States (US) economic docket highlights the release of the closely-watched US monthly jobs report data for February. And, the Nonfarm Payrolls expectations are that the economy added 205K jobs during the reported month, down from the stunner 517K in January. The Unemployment Rate is expected to remain unchanged at 3.4% in the second month of this year. 

Investors will also pay close attention to the Average Hourly Earnings, especially after the January US Consumer Price Index (CPI) and the Fed’s preferred inflation gauge, the Core PCE Price Index, came in hotter than expected.

It’s worth mentioning that on the state of the United States labor market, Powell said that "overall data on the labor market shows it is extremely tight and contributing to inflation."

Analysts at Commerzbank are bullish on the US labor market and expect another solid jobs report: “Although much lower job gains are to be expected for February, at 240K they should be far from weak. Such an increase in employment would be noteworthy because the US labor market is already extremely tight with an unemployment rate of 3.4%, the lowest since 1969, and this figure is unlikely to have changed in February. Accordingly, we expect the report to support expectations for further rate hikes. We forecast a 25 bps hike at each of the Fed's next three meetings.”

When will be US February Nonfarm Payrolls report released and how could it affect EUR/USD?

The Nonfarm Payrolls report is scheduled for release at 13:30 GMT, on March 10. With the US Dollar reaching a fresh three-month high, courtesy of heightened expectations for a 50 basis points (bps) March Fed rate hike, the EUR/USD pair is languishing in weekly lows below the 1.0600 psychological mark. Stronger US employment details could provide additional legs to the ongoing advancements in the USD, throwing the major pair deeper into losses.

On the other hand, a weaker-than-expected NFP print could trigger a sharp correction in the USD, as it would squash expectations of bigger rate increases by the Fed and an eventual higher terminal rate. The market repricing of the Fed rate hike outlook could reinstate US Dollar bearish trades, initiating a potential turnaround in the EUR/USD pair.

Dhwani Mehta, Analyst at FXStreet, offers a brief technical overview and outlines important technical levels to trade the EUR/USD pair: “The main currency pair is extending its three-day recovery momentum from two-month lows of 1.0524 heading into the NFP showdown. The pair faces strong resistance at the downward-sloping 21-Daily Moving Average (DMA) at 1.0634 once the 1.0600 mark is reclaimed. The next significant resistance levels are seen at the weekly high of 1.0694 and 1.0720 (the flattish 50 DMA).”

“However, the recent upside in the EUR/USD pair appears shortlived, as the 14-day Relative Strength Index (RSI) still remains below the midline, despite the latest uptick. Therefore, on renewed selling, the pair could change course and retest the bullish 100 DMA support at 1.0533, below which a fresh drop toward the 1.0500 level could be in the offing. The last line of defense for Euro bulls is envisioned at 1.1483, the year-to-date low,” Dhwani adds.

Nonfarm Payrolls related content

• Gold Price Forecast: XAU/USD to retest 100 DMA support on strong US Nonfarm Payrolls
• Nonfarm Payrolls Preview: Five scenarios for the Fed, USD and stocks reactions, with probabilities
• EUR/USD Analysis: Bulls remain at the mercy of USD price dynamics ahead of NFP report

About the Nonfarm Payrolls report

The Nonfarm Payrolls released by the US Department of Labor presents the number of new jobs created during the previous month, in all non-agricultural business. 

The monthly changes in payrolls can be extremely volatile, due to its high relation with economic policy decisions made by the US Federal Reserve. The number is also subject to strong reviews in the upcoming months, and those reviews also tend to trigger volatility in the forex board. 

Generally speaking, a high reading is seen as positive (or bullish) for the US Dollar, while a low reading is seen as negative (or bearish), although previous month's reviews and the Unemployment Rate are as relevant as the headline figure