The highlight of this week’s U.S. economic data calendar looms Friday with the release of the March jobs report. And traders looking for a potential surprise — good or bad — are circling two currencies.
They see the British pound
GBPUSD, -0.3518%
and the Australian dollar
AUDUSD, -0.1547%
AUDUSD, -0.1547%
as the most likely to react to an unexpected reading. The release, due at 8:30 a.m. Eastern, may be getting even more attention than usual after disappointing February data showed the economy added just 20,000 jobs, well short of the 172,000 expected.
“In the event the jobs and crucially wages data beat expectations, then we would favor looking for short-term bullish setups on the dollar against the likes of the British pound given the ongoing Brexit uncertainty in the U.K.,” wrote Matt Weller, currency analyst at Forex.com.
See: Job creation seen rebounding in March after February freeze
Any upside in the greenback could be a double-whammy for sterling bears. Despite putting together three winning sessions to begin the week, the pound sits on a knife-edge as the struggle by U.K. politicians to agree on the potential terms of the country’s divorce from the European Union continue.
Read: How stock-market bulls risk getting caught off guard by another ugly jobs report
On Wednesday, Parliament voted by a majority of one (313 to 312) to legally rule out exiting the EU without an agreement — a so-called no-deal Brexit. May’s Conservative Party and the opposition Labour Party held further talks Thursday, with the prime minister looking to agree on a common approach before an EU summit next week. May has said she would seek a short delay of the U.K.’s exit scheduled for April 12, during which she would attempt to pass the needed legislation before May 23, allowing the U.K. to avoid participating in European parliamentary elections.
Brexit Brief: May and Corbyn continue talks after no-deal bill passes by one vote
Read: Brexit vote: 3 reasons why investors outside of the U.K. should care
Moreover, according to Brad Bechtel, fixed income and foreign exchange analyst at Jefferies FX, some traders have been setting up for a bounce in pound, a risky play given the political backdrop. “There are also those who are positioning for the pop but that has become such a consensus view that you wonder if and by how much it will actually occur.”
A move against market consensus can accelerate losses as traders scramble to exit their positions.
Read: How stock-market bulls risk getting caught off guard by another ugly jobs report
Economists polled by MarketWatch are expecting 179,000 jobs to be added and the unemployment rate to remain steady at 3.8%.
Commonwealth Financial Network
But, should the data prove to be another howler, expectations will turn to Fed policy, where market participants might price in more accommodation that could boost stocks and other risk-related assets.
“If the jobs data misses expectations, then we would favor looking for bearish setups on the dollar against a currency like the Aussie dollar, as it could serve as a catalyst for more ‘risk on’ sentiment on the theory that the Fed may have to cut interest rates later this year,” said Weller.
Since delivering its fourth rate increase of 2018 in December, the Fed in January shelved plans for a continued series of rate increases, adopting a wait-and-see stance in the face of weaker-than-expected U.S. economic data and concerns about global growth.
Adding to monetary policy uncertainty, the Fed has come under pressure from President Donald Trump to ease interest rates.
The Fed’s dovish shift earlier this year has been credited in part for a stock market rally that’s seen the S&P 500
SPX, +0.39%
and Dow Jones Industrial Average
DJIA, +0.09%
post double-digit percentage gains in 2019.
Read: Trump still livid with Fed despite central bank’s dovish policy shift
Private-sector payrolls data on Wednesday from ADP showed hiring fell to an 18-month low. But data Thursday showed the number of people who applied for first-time jobless benefits last week fell to the lowest level since December 1969, a reassuring sign for the economy.
Read: Why the toughest part of a U.S.-China trade deal still lies ahead
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