Markets await NFP data as the labour market stays resilient

The U.S. ADP payrolls employment suggests a strong outcome for the U.S. NFPs this Friday at 13:30 UTC. The ADP numbers came in at 183,000 versus 148,000 expected, a strong beat. Economists expect the NP figure to be 169,000, a sharp drop from last month's 286,000, while the unemployment rate is projected to remain at 4.1%.

ISM Services PMI falls, but employment index remains solid

Not all the news was positive. The U.S. ISM Services PMI fell from 54.1 to 52.8. However, the Employment Index remained in expansion territory for the fourth consecutive month, rising to 52.3 from last month's 51.3, a one-point increase. While the headline ISM Services PMI looks weak, the subcomponent remains stable.

Jobless claims stay low as federal workforce shrinks

Jobless claims have remained relatively stable. The second week of January saw a low reading of 201,000, with the highest figure since then reaching 223,000, followed by 207,000 in the latest report. These numbers are significantly lower than those seen last summer when unemployment concerns were more pronounced.

Meanwhile, Trump's administration has moved to reduce the federal workforce. About 20,000 employees have accepted a buyout offer granting them eight months of pay if they resign by 06 February. The administration expects 5-10% of the federal workforce to take the offer, potentially reducing the workforce by up to 200,000 employees. If this materialises, non-farm payrolls could turn negative in the March reading, unsettling traders and increasing unemployment. However, given the strong labour market, many workers may transition into other sectors once their payouts run out.

The Fed is likely to hold rates steady

From the Fed's perspective, a strong labour market report on Friday will likely reinforce its stance to keep interest rates steady. This approach aligns with current market volatility. Tariffs previously triggered sharp market moves, but those reactions were quickly reversed. However, there is still a risk of new tariffs if Trump is dissatisfied with expected outcomes, such as the deployment of 10,000 troops along the Canadian and Mexican borders to protect production.

EURUSD is set for volatility depending on the NFP

Looking at trading implications, market expectations lean towards more of the same. However, an unexpectedly weak NFP report could cause the most sensitive reaction. EURUSD has already experienced sharp fluctuations, initially pushing lower before rebounding as tariff concerns on Canada and Mexico eased.

Rumours suggest a 10% tariff on European goods could be introduced, though this has yet to impact the Euro. A weaker-than-expected NFP report could push EURUSD above its January high of 1.0533, potentially rising to 1.0617 and 1.0700. If the price stays below that level, it could retest 1.0200 and move lower. However, this scenario seems unlikely unless NFPs post a powerful reading, which is doubtful given the federal worker buyouts.

Gold's uptrend is intact unless NFPs surprise strongly

Gold and silver could see a brief correction if NFPs are more potent than expected, but as long as gold holds above 2,730, the uptrend should continue. The market has the right conditions for further gains, including geopolitical tensions, the deportation of undocumented migrants that could drive U.S. inflation higher, and potential trade wars. A pullback toward the previous all-time high of 2,790 that does not break below 2,730 would likely attract buying pressure, pushing gold toward 3,000.

NASDAQ-100 is stuck in a range, awaiting a breakout

The reaction to the NFP report is expected to be minimal for the NASDAQ-100. The index remains firmly range-bound between 20,407 and 22,151, requiring a breakout to establish a new trend. The most likely scenario is an upward push unless labour market-driven inflation forces the Fed to hike rates, which could create headwinds. However, any tightening from the Fed would likely be countered by Trump's deregulation efforts and tax cut policies.