Market Impact Analysis; Setups on USD/JPY, Gold Prices

US NONFARM PAYROLLS – USD/JPY, GOLD

• The U.S. dollar and gold prices will be very sensitive to the upcoming U.S. jobs report
• Market expectations suggest the U.S. economy created 200,000 payrolls in March
• Strong job growth should be positive for the U.S. dollar but bearish for gold prices

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Investors will be on edge on Friday as the U.S. Bureau of Labor Statistics is scheduled to release its latest nonfarm payrolls report. This closely watched economic survey holds significant sway over market sentiment, especially in relation to the Federal Reserve’s monetary policy trajectory.

In terms of consensus estimates, economists anticipate a moderation in job growth, forecasting the addition of 200,000 new jobs in March. This marks a slowdown compared to February’s robust 275,000 added positions. The unemployment rate is expected to remain unchanged at 3.9%.

Focusing on pay gains, average hourly earnings are projected to increase by a modest 0.3% month-over-month, bringing the yearly reading down to 4.1% from 4.3% previously, potentially easing some of the Fed’s concerns about a wage-price spiral reinforcing already elevated prices pressures in the economy.

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Navigating the Potential Market Reactions

How the markets respond to the NFP data will largely depend on whether the numbers exceed or fall short of expectations:

Strong Report: A surprisingly strong jobs report could signal a resilient economy, leading the U.S. central bank to hold off on plans to ease interest rates imminently. This scenario should be bullish for the U.S. dollar, but is likely to put downward pressure on precious metals like gold and silver.

Weak Report: A disappointing NFP release might indicate a cooling labor market. This could bolster market expectations for earlier interest rate cuts by the Fed, strengthening the case for a June move. Such a development could lead to a weaker U.S. dollar, providing potential support for gold and silver prices.

The table below show FOMC meeting probabilities as of Thursday morning.

Source: CME Group

Beyond the Headline Numbers

Traders need to carefully examine the report’s details for clues about underlying trends in the labor market. Key factors to watch include:

Participation Rate: An increase in the labor force participation rate suggests more people are entering the job market, a positive sign for the economy.

Revisions to Previous Months: Pay close attention to any revisions in the jobs data from prior months, as these can influence market reactions.

Prepare for Volatility

Traders should brace for potentially sharp price movements and market volatility immediately following the NFP release. For this reason, it is important to employ sound risk management strategies and avoid making impulsive decisions based solely on this one data point. Consider the report’s findings in the context of broader macroeconomic trends and the latest signaling from the Federal Reserve.

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USD/JPY FORECAST – TECHNICAL ANALYSIS

USD/JPY traded within a confined range on Thursday, lingering just below overhead resistance at 152.00. This technical barrier warrants close attention, as a breakout might prompt intervention from the Japanese government to support the yen. Should such a scenario unfold, a rapid reversal below 150.90 could occur ahead a possible drop towards the 50-day simple moving average at 149.75.

In the event that USD/JPY takes out the 152.00 level and Tokyo refrains from intervening, opting instead to allow market forces to find a new equilibrium for the exchange rate, buyers might gain confidence to launch a bullish attack on 155.25, a key barrier created by the upper boundary of an ascending channel in place since December of last year.

USD/JPY PRICE ACTION CHART

USD/JPY Chart Created Using TradingView

GOLD PRICE FORECAST – TECHNICAL ANALYSIS

After briefly touching an all-time high during the overnight session, gold prices retreated on Thursday, stepping back from the $2,305 threshold. Should downward pressure persist, support is scarce until the $2,225, implying the potential for a large retracement in the event of a breakdown before any signs of stabilization appear.

Conversely, should bulls reclaim firm command of the market, resistance awaits at $2,305, as previously noted. In case of a breakout, prices would enter uncharted territory, making it challenging to pinpoint potential resistance levels. However, a notable area of interest may lie at $2,345, corresponding to an ascending trendline originating from the lows of March 2023.

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GOLD PRICE-ACTION CHART

Gold Price Chart Created Using TradingView