Global macro overview for 06/04/2018

In the US labor market report, market attention will again be on wage growth with expectations for a robust acceleration of 0.3%. The high rate of employment in the previous month was based on seasonal fluctuations in temperatures and now we are facing the risk of rebound, but this should not prevent the unemployment rate to drop to 4%. If high expectations are not met, the market will regard this as a confirmation of the good situation in the economy, but with no grounds for tightening the Fed's strategy, which will be positive for the risk appetite.

Employment increase by 313,000 in February was quite a surprise, it fell clearly above the average of the last 12 months (181,000), but the results were strongly disturbed by exceptionally warm weather, which according to the Fed's San Francisco branch, could have estimated about 90,000. Similar disturbances in January and February 2017 were reversed in the following months, and weather models suggest that last month's temperatures were below average. Taking as a reference point a solid ADP reading of 241,000 (where the weather element is not affected), the consensus before the NFP at 185,000 is conveniently set to take into account the correction for the weather. Each reading above 150,000 should be dropped due to weather-related disorders, while the result is above 200,000 it will be a positive sign that the high pace of economic activity will be maintained.

In February, the unemployment rate remained at 4.1% for the fifth month in a row, but with a high employment rate in recent months, the rate will very likely drop to 4.0%. If the rate remains at 4.1%, it will indicate that there are still underemployed manpower in the economy, which in the long run may hinder the acceleration of wages. However, it is unlikely that the reading out of the consensus would have a measurable effect on the markets.

Let's now take a look at the EUR/USD technical picture at the H4 time frame before the NFP Payrolls data are published. The market remains locked inside of the descending channel (dashed violet) and recently has made a new local low at the level of 1.2220. If the NFP data are better than expected, another slide towards the level of 1.2163 is expected. On the other hand, a worse than expected data will likely result in a temporary relief rally towards the level of 1.2345 again.