According to the Bureau of Labor Statistics, Non-farm Payroll employment increased in May, reaching 223K, while Average Hourly Earnings rose to 0.3% (0.1% higher than expectations), and Unemployment Rate declined to an 18-year low at 3.8%.

Analysts had anticipated a headline number of 189K while BLS reported a much better figure, which may be revised during Friday’s NFP release.

Employment continued to trend up in several industries, including retail trade, health care, and construction.

US Change in Non-farm Payrolls is currently up from 159K last month, up from 155K one year ago and up from 191K average over the past twelve months, marking the second-best report in Q2 2018.

With headline numbers becoming more and more solid, the number of jobs added becomes less important and significance shifts to wages as they drive inflation.

Investors are patiently waiting to receive clues and the headline numbers. But headline numbers are certainly not all that matters.

What to focus on in June’s report…

1. US and EU Interest Rate differentials shift further following June FOMC

With Fed Funds rising to 2.0%, FOMC members reiterated the strong US economic outlook and widened the spread between US and EU rates.

As a result, shorting EUR/USD to earn interest now seems even more profitable for carry traders.

Euro is 190 pips weaker than it was on June 13 as of 02.07.18, 16:11 (GMT+3).

2. Oil multiyear high and Fed’s favourite inflation indicator, PCE

With Crude Oil prices increasing continuously, cost-push inflation also rises and economic growth may come to a temporary slowdown until investors start re-positioning themselves when price becomes cheaper.

Fed’s move to curb inflation by hiking rates, even four times this year, may be indeed justified.

However, when it comes to surpassing the so-long desired PCE target, data shouldn’t be ignored as hikes don’t seem to be holding back oil prices.

3. Equities and international fiscal policy effects – The ‘Trade War’

The recent US plan to restrict Chinese investments in US, and the fresh investigation on up to $350B tariffs on Chinese auto-imports, had US stocks sliding over the past days, not to mention the decline over the past few weeks, while the Dollar Index was gradually rising.

Regardless, the fresh concerns over escalating trade tensions with China and EU, the NAFTA trade renegotiation and Mexican politics are likely to weigh in.

Since equities performed poorly, confidence in USD may falter.

4. Wages figures expected to match yearly high, lack of growth worrisome

With wage figures rising to 0.3% last month, risk appetite was solid enough to take the Dollar high and keep this narrative amid trade war concerns.

The fast-growing wages have supported and have also been justified in interest rates, yet the question of whether this month’s guidance should drive US interest rates further remains valid, as trade war fears saw businesses cutting back on hiring.

In case you want to learn more about Non-farm Payrolls and how to analyse the market technically and fundamentally pre-NFP, join FXPrimus at the live NFP webinar.

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