December NFP Preview: The First Test of Post-Trump Data


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    Talking Points:

    - November was a big month for markets as the 'Trump Trade' drove some significant price action moves.

    - Tomorrow brings us our first piece of post-Trump data out of the United States with the release of November Non-Farm Payrolls. The expectation is for 175k jobs to have been added to American payrolls for the most recently completed month.

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    November was a month for the ages with the massive market reversal that took place around-the-world on the results of the U.S. Presidential Election. If you would've offered 10-1 odds at the beginning of November that Donald Trump would be elected President of the United States, and then markets would rally to fresh all-time-highs, you probably would've still been hard-pressed to find anyone that would've taken that trade. As a matter of fact, one Irish bookmaker had even already begun to pay out on bets that Hillary Clinton would win the election, ahead of the election results, and ended up with quite a bit of 'egg on their face.'

    The lesson here is that markets are unpredictable, and sometimes brutally so. The longer a trader spends around the market, the more they learn this fact; the less they try to predict and the more they try to 'trade.' And a big part of this is managing risk and trying to go with the flow, because as a trader you're, at most, a very, very small representation for a market as a whole. A big part of 'going with the flow' of the market draws back to analysis; looking for ways to align implied-probabilities for how a market may react with a given stimuli.

    We have a really interesting stimuli unveiling itself tomorrow with the release of November Non-Farm Payrolls out of the United States. The analytical backdrop as we move nearer to the release is that basically everything-US has been strong since the Presidential Election. The Dollar has rallied up to fresh 13-year highs, the S&P 500 and DJIA have rallied up to even-higher all-time-highs, and rate expectations for 2017 and 2018 out of the U.S. have been ticking-higher as well (a hike in December is currently seeing odds near-100%).

    December NFP Preview: The First Test of Post-Trump Data

    Chart prepared by James Stanley

    Throughout the month of November, U.S. data had been relatively strong with some significant high points. Earlier this week, we saw a blowout consumer confidence print of 107.1 versus an expectation of 101.5. PCE was released earlier this week to show the highest wage growth in the U.S. in over two years; jobless claims printed at 40-year lows, personal incomes at 6-month highs, GDP at 2-year highs and the jobless rate remains at 4.9%. All in all, this makes for a fairly robust fundamental backdrop that could certainly support a more hawkish rate hike path for the Fed in 2017.

    There's just one catch here: All of the data mentioned above was generated pre-Trump. The U.S. economy has shown signs of picking up steam even before this gargantuan rally around the U.S. Presidential Election began. So, the exuberance shown after the election combined with this improving fundamental backdrop for the U.S.; combined with the already-existing persistence of the Fed to try to 'normalize' policy all make for a situation that could continue to drive the U.S. Dollar higher, potentially for months.

    December NFP Preview: The First Test of Post-Trump Data

    Chart prepared by James Stanley

    Tomorrow represents the first piece of significant post-Trump data that markets will be able to chew on with the release of Non-Farm Payrolls. At 8:30 AM ET, the number of Non-Farm jobs added in the United States for the month of November will be unveiled to markets, and the expectation is for 175k jobs to have been added to American payrolls during the month of the election. If this number comes out higher-than-expected, we could see some continuation in the USD-trade as traders price-in the prospect of an even more hawkish Federal Reserve at their next meeting in the middle of the month.

    The big question here is how much might the top-side move extend? Given that we've already rallied quite a bit, it may take a significant beat, such as 200k+ to really provoke motivation to push prices even-higher. If, on the other hand, we get a soft print below expectations, this may provide some temporary relief to the burgeoning up-trend as traders take profits ahead of the weekend. This certainly doesn't change the trend, at least in and of itself, unless this print comes out abysmally bad, such as we saw in June of this year for the May payroll numbers.

    And this is where the analytical setup is most interesting: We have what could be a significant, 'big picture' theme here with the return of the 'reflation trade.' The fact that the U.S. is one of the few economies in the world looking at tighter policy options, whether that's two hikes in 2017 or three, exposes the fact that the U.S. Dollar is one of the few currencies that may be driven-higher by more ebullient rate-hike expectations.

    The only issue is that the move is a bit over-extended; and tomorrow's NFP report can help with that. Should NFP come out weak tomorrow, leading to that profit taking, soft-Dollar scenario, traders can use that move-lower to position-in to longer-term long positions. On the chart below, we're looking at a series of potential support levels that can be watched in the Greenback in the effort of 'using the news,' or to put it more simply, using super short-term bearishness to work-in to a longer-term theme of bullishness.

    December NFP Preview: The First Test of Post-Trump Data

    Chart prepared by James Stanley

    --- Written by James Stanley , Analyst for DailyFX.com

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