NFP In Focus But Watch Gold For Dollar's Direction

IChicago (Feb 7)  nvestors and dealers live for market volatility, it creates trading opportunity, and today’s North American jobs reports should not disappoint even the neutral observer. The release of last month’s employment reports for the U.S. and Canada came in far below expectations, with the weather being blamed for the bulk of setbacks. Canada actually lost jobs while the U.S. created few, both well off market expectations (74k and -46k, respectively). Today, particularly for the U.S., another sub-par performance and future Federal Reserve taper actions will surely be called into question. Even for the good health of the typical global investor, this market requires a healthy nonfarm payrolls (NFP) report, or one that is close to consensus (+185k and an unemployment rate +6.7%), to keep the investment ship afloat. Any serious deviation from expectations and we will have a foreign exchange (forex) market second guessing not just the Fed’s monetary position but others’ as well.

What to watch? Gold – the jobs number could have a significant impact on the precious metal. A decisive number will be capable of pushing the commodity beyond this year’s frustrating range. For the yellow metal to climb higher, it needs a dreadful headline print (something close to last month’s release or worse). A “below” consensus print (185k) will have many questioning the Fed’s tapering requirements and it could push gold toward that $1,300 handle. If the headline print comes in around consensus then the metal will be sold – the depth of the pullback will depend on how equities react. Even if the NFP comes in well “above” expectations, gold should be sold – the safe-haven trade becomes redundant (risk is strapped back on) and the mighty dollar gets bought, along with equities. A strong number has the potential for the metal to trade below that psychological $1,200 handle. What if the NFP report truly bums out? If it does, the market should expect a seismic shift in thought. Investors are not that long gold – a disappointing print should find a second wind and have the ability for a lengthy rally. The length depends on how market expectations for Fed tapering alter. Finally, if investors are capable of dismissing the weather element, and Fed tapering thinking shifts, then gold should stay a lucky winner.

(Source:  FORBES)