U.S. Non-Farm Employment Report Coming Soon: December Growth May Continue to Remain Weak, Potentially Triggering Major Forex Market Volatility

Market-Driven Employment Data Set to Be Released

This Friday at 13:30 GMT (21:30 Beijing time), the U.S. Bureau of Labor Statistics will release the December non-farm payrolls data, a report of great significance to investors. The health of the U.S. labor market directly influences the Federal Reserve’s interest rate decisions, thereby affecting the USD and other major currency pairs. Analysts generally believe this data could become the first major market catalyst of 2024.

December Employment Growth Expectations Continue to Weaken

According to U.S. labor market forecasts, non-farm employment is expected to increase by around 170,000 jobs in December, significantly below November’s 199,000 new jobs. More notably, this will mark the third consecutive month of slowing growth in U.S. non-farm payrolls, showing a gradual decline from high levels.

The unemployment rate is expected to rise to 3.8%, reflecting signs of cooling in the labor market. Meanwhile, the market’s closely watched wage inflation indicator—the year-over-year growth rate of average hourly earnings—is projected to decline from 4% in November to 3.9%, indicating a gradual easing of wage growth momentum.

Recent preliminary data from ADP shows that private sector employment increased by 164,000 in December, with annual wage growth at 5.4%, broadly in line with expectations, suggesting a soft landing in the labor market is taking shape.

Fed Rate Cut Expectations Rise, USD Outlook in Focus

Against the backdrop of persistent inflation cooling, the market widely believes the Fed’s tightening cycle has concluded. According to the CME FedWatch Tool, the probability of a rate cut in March has risen to about 65%. The Fed’s December economic projections explicitly indicated an overall 75 bps reduction in the policy rate, further fueling market expectations for rate cuts.

Fed Chair Jerome Powell recently stated that policymakers have begun assessing when to start easing, emphasizing their concern about “mistakes like keeping rates too high for too long,” signaling a policy shift. Although some hawkish officials, such as Chicago Fed President Goolsbee and Cleveland Fed President Mester, expressed concerns about premature rate cuts at the end of December, these voices have had little impact on market pricing.

This employment report will be a key piece in validating the Fed’s rate cut trajectory, with significant implications for USD valuation. The clearer the rate cut expectations, the greater the pressure on the dollar.

Diverging Employment Trends in Major Industries

The TD Securities analysis team noted in their preview report that non-farm employment is likely to remain in the 150,000-200,000 range for the third consecutive month of moderate growth. The technology and financial sectors are expected to remain weak, acting as drag factors on employment growth; meanwhile, government hiring may stay relatively active, potentially serving as the main support for net employment gains.

How Will Employment Data Shake Up EUR/USD?

EUR/USD surged strongly in December, reaching a high of 1.1140—the highest since July—before experiencing a technical correction at the start of 2024. The release of this U.S. non-farm payrolls data could trigger significant volatility in EUR/USD.

If the employment data shows strong performance (an increase of 200,000–250,000 jobs) and wage growth exceeds expectations, investors may reassess the likelihood of a Fed rate cut, supporting a rebound in the USD and exerting downward pressure on EUR/USD. Conversely, disappointing data that reinforces dovish expectations for the Fed could lead to renewed selling of the dollar. Given current market positioning, a soft data-driven decline in the USD might be short-lived.

Technical Outlook: EUR/USD Balance Point

From a technical perspective, recent support for EUR/USD is concentrated around 1.0930–1.0920, coinciding with the 50% Fibonacci retracement of the recent rally and the 200-day simple moving average. If the exchange rate begins to top out in this zone, technical sellers may step in, with next downside targets at 1.0880 (61.8% Fibonacci retracement) and 1.0830 (static support).

On the resistance side, the 1.0970–1.0980 zone (the confluence of the 100-day moving average and 38.2% Fibonacci retracement) will serve as the first line of defense. Above that, resistance levels include 1.1020–1.1030 (20-day moving average and 23.6% retracement) and 1.1120 (recent rally high).

The release of the U.S. non-farm payrolls data will be a key catalyst in determining the direction of the currency pair.