NFP to Drop on Thursday as Greek Drama Rises

With Greece’s fateful, upcoming weekend referendum top-of-mind, investors will divert their attentions to the U.S. nonfarm payrolls (NFP) report when it is published on July 2 at 8:30 a.m. EDT.

Traditionally the NFP release date is always the first Friday of the month, but given the Fourth of July holiday, it will be released one day early. The last two weeks of June have been marked by high levels of uncertainty as macro, social, political and terrorist situations have dominated headlines around the globe. Markets await the outcome of the Greek referendum, but on Thursday all eyes will turn to the U.S. for guidance.

U.S. employment has been consistently the best performer for the economy and the Federal Reserve is counting on a strong reading to validate an interest rate hike as early as September. The consensus from economists and analysts forecasts the NFP adding more than 200,000 jobs. The range of expectations are from 220,000 up to 235,000 and are considerable lower than the May report where the U.S. added 280,000 new jobs crushing the 222,000 forecast.

American economic indicators have been mixed but the rhetoric from central bank members have raised optimism of a September interest rate hike. Existing and new home sales continue to impress and consumer confidence measures have risen after the Federal Open Market Committee (FOMC) statement. Federal Reserve Governor Jerome Powell mentioned that there is still a possibility of two rate hikes before the end of the year. It is unclear how much the deterioration of the debt negotiation between Greece and the Eurogroup will affect the Fed’s assessment of the economy, but most market watchers see the central bank sticking to the current path.

The EUR/USD has been a volatile pair to trade with a weekly depreciation of 0.383% and 2.95% high and low movements. The weekly low was 1.0955 while the high touched 1.1278. After a turbulent weekend high on drama the pair opened at the weekly low of 1.0955 and immediately started appreciating back to above 1.12 after the U.S. market open. The start of the week offered little in regards to economic indicators, so investors where guided by a lack of a Greece debt deal, and uncertainty on next weekend’s referendum. The U.S. employment indicators this week, the ADP payrolls report, the NFP, and the unemployment claims, have the opportunity to present the USD as a strong alternative.

A strong employment picture this week and the release of the FOMC’s minutes next week can upgrade market’s expectations about September and even make participants share Powell’s optimism on two rate hikes this year. The resulting rate divergence with major economies would appreciate the dollar across the board, but only if the U.S. manages to avoid contagion and recover the pace of growth that was lost in 2014.

The American Independence holiday will drain liquidity from the markets ahead of the Greek referendum. With only one week’s notice, Greek voters will be asked to decide if the Hellenic nation should remain in the eurozone, or if it should exit and sail on into uncharted territory.

Forex market events to watch:

Wednesday, July 1
8:30 a.m. ADP nonfarm employment change

Thursday, July 2
8:30 a.m. USD nonfarm payrolls
8:30 a.m. USD unemployment rate
8:30 a.m. USD unemployment claims
10:00 a.m. USD ISM manufacturing PMI
11:10 a.m. EUR ECB President Mario Draghi speaks

Sunday, July 5
All day Greece referendum

*All times EDT. For a complete list of scheduled events in the forex market, visit the MarketPulse Economic Calendar.

Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza