This week's Non-Farm Payrolls should be bullish for USD
At last the US economy seems to have rediscovered sustainable growth and that should be reflected in Friday's Non Farm Payroll numbers. A strong reading would support the US Federal Reserve's tapering narrative and boost USD.
Q4 2013 saw a slew of very positive economic data out of the US with last month's NFP number showing that an extra 203,000 jobs were created. Also, previous NFP numbers were revised up.
Therefore there is good reason to believe around 200,000 new posts were created during December. A poll of economist conducted by Thomson Reuters forecasts 195,000 new jobs with the unemployment rate at 7% though some economists are predicting as many as 230,000 posts were added.
Though not a particularly accurate predictor of NFP payroll processing firm ADP said private sector employment rose by 238,000 in December, above November's upwardly revised figure of 229,000.
Above 200,000 should see tapering continue
Anything around 200,000 or more should see the US Federal Reserve continuing to shave $10 billion a month off its monthly bond purchasing programme. If all goes to plan the Fed's quantitative easing programme should be completely wound down before year end.
This stands in contrast to the actions of the European Central Bank and the Bank of Japan, which are still in various degrees of monetary easing mode.
However, there are bound to be some weak NFP numbers over the course of this year. These will certainly test the Fed's resolve over winding down its QE programme. For instance, the summer period often produces a series of weak numbers – this even often occurred in the go-go years before 2008.
The Fed has indicated that the pace of winding down its QE programme is not written in stone – therefore it may not be ended quite as quickly as many pundits have been forecasting and that could temper long-term USD gains.
By Justin Pugsley, Markets Analyst MahiFX
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