05 May, AtoZForex, London – Bank of America Merrill Lynch has shared with us its BoAML NonFarm Payrolls forecast and USD trade ideas for currency investors to acknowledge ahead of tomorrows NFP release scheduled 13:30 GMT.
BoAML NonFarm Payrolls forecast
“Nonfarm payroll growth likely posted a solid 200,000 in April, driven once more by service-providing firms,” BoAML projected. Of this, government hiring has likely contributed by 5,000, which is a more modest increase than the 20,000 surprise in March.
Meanwhile, “we look for the unemployment rate to hold at 5.0%, assuming the participation rate holds steady,” Bank of America noted. A robust labor market has attracted many workers back to their jobs.
However, “increased labor supply also means delayed wage pressures: we are looking for only 0.2% monthly growth in average hourly earnings,” BoAML added. This would leave the yoy growth rate unchanged at 2.3%. Lastly, average weekly hours should edge up to 34.5 from 34.4.
NFP trade: Long USD into release
Bank of America Merrill Lynch recommends being tactically bullish on the US Dollar ahead of NonFarm Payrolls release.
The anticipated job addition of 200k would be mildly USD positive. It would support thoughts that the recent USD weakness has overshot, Deutsche Bank argues, adding that “a favored rebuild in long USD exposure is versus the commodity currencies notably AUD (a trade helped by valuation considerations) and CAD (given sensitivity to Fed policy).”
Moreover, the expected stability in average hourly earnings is not great but better than deceleration, which along with generally improving trend in wages is enough to keep the Fed on track for a June hike.
“Relative to a market that’s only pricing a 36% chance of a June hike, this could see the USD supported,” Bank of America noted. Additionally, aggregate Dollar positioning turned net USD short for the first time since May 2014, according to CFTC data.
“While we will need to see a more significant change in Fed rhetoric to rally significantly, there’s room for a tactical rally. Our Quant and Technical analysis also points to room for a near-term USD rally,” Bank of America Merrill Lynch finished.
Also see: Barclays NFP forecast & Forex analysis
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