Friday’s US jobs report could bring a bearish reversal for the dollar despite the ongoing bid to claw back jobs lost in March and April.

The August US jobs report released on Friday provides traders with another opportunity to take a close look at the ongoing economic recovery following the economic collapse that took hold in the first half (H1) of 2020. Capping off the week, the jobs report will be released at 1.30pm (UK time) on Friday 4 September.

ADP weakness could spell trouble for headline NFP number

The US jobs outlook has been showing signs of gradual improvements over the course of the past few months, with the height of the crisis seemingly having occurred in April. However, we are reaching a period where that recovery appears to be slowing somewhat, with the payrolls figure decreasing over the past two months. The automatic data processing (ADP) payrolls figure highlights the potential for further disappointment on Friday, with another underwhelming figure this week (428K) highlighting the lack of follow through on this recovery.

Looking at the jobless claims data, we have seen the initial filings decline once again, following a tentative push higher in mid-August. However, while we are moving in the right direction once again, this is a sign we are seeing some bumps in the road as the US economy attempts to recover from the 22.2 million jobs lost in March and April. So far less than half of those losses (42%) have been regained.

Markets are expecting to see a decrease in the number of jobs created, with a figure of 1.49 million well below the 1.76 million seen in July. However, it is worthwhile noting that the rate of improvement was always likely to slow after initial gains made as the economy first turned a corner. Nevertheless, the economic picture is still improving, as highlighted by the unemployment rate which is expected to break below the 10% threshold for the first time since April. Despite last months decline, it is important to follow the participation rate, with a recovery in that rate telling a story of how people are feeling confident enough to return to the workplace. Finally, with average hourly earnings expected to fall from 4.8% to 4.6%, we are seeing a signal that those lower paid jobs (often in the services sector) are returning after the initial lockdown shock.

Dollar index technical analysis

Looking at the dollar index, we have seen huge declines for the greenback over the course of this crisis. The past month has seen a more balanced market, although we have maintained the bearish theme. With the price on the rise over the course of September thus far, there is a chance we could see another move lower given the confluence of trendline and 76.4% Fibonacci resistance up ahead. With that in mind, it will be worth watching for a sign of a bearish reversal from here, with a break through 93.50 ultimately required to bring about a fresh bullish outlook.

By Joshua Mahony