Introduction to Nonfarm Payrolls Report
The United States Bureau of Labor Statistics (BLS) is set to release the Nonfarm Payrolls (NFP) data for December, which could have a significant impact on the US Dollar (USD). The employment report is expected to provide key clues about the Federal Reserve’s (Fed) policy-making approach in the new year, potentially leading to heightened volatility in the USD.
What to Expect From the Next Nonfarm Payrolls Report
Economists predict that Nonfarm Payrolls will rise by 60,000 in December, following a 64,000 increase in November. The Unemployment Rate is expected to edge lower to 4.5% from 4.6%, while annual wage inflation is forecast to tick up to 3.6% from 3.5%. The monthly report from the Automatic Data Processing (ADP) showed that private sector payrolls rose by 41,000 in December, and the Employment Index of the Institute for Supply Management’s Services Purchasing Managers’ Index (PMI) climbed to 52.
TD Securities analysts predict that job gains will stabilize at around 50,000 over the last two months, with private payrolls printing a 50,000 gain in December. They also expect the unemployment rate to normalize to 4.5% after seeing a shutdown-driven jump to 4.6% in November. Average hourly earnings are likely to rise 0.3% month-over-month and 3.6% year-over-year.
Impact on EUR/USD
The US Dollar ended the year on a bullish note and has maintained its footing to begin 2026. Although the Fed adopted a dovish stance at the December policy meeting, market participants see a strong chance of the US central bank holding the interest rate unchanged at the January meeting. According to the CME FedWatch Tool, investors are currently pricing in a less than 15% chance of a 25-basis-point rate cut this month.
The employment data could influence the odds of a rate cut in March, which currently stands around 45%, and trigger a significant market reaction. Richmond Federal Reserve Bank President Thomas Barkin said rate decisions will need to be "finely tuned" given risks to both unemployment and inflation goals. Minneapolis Fed President Neel Kashkari noted that the job market is clearly cooling and added that there is a risk the Unemployment Rate can "pop from here."
Technical Outlook for EUR/USD
A significant upside surprise in NFP, with a reading above 80,000, combined with a drop in the Unemployment Rate, could cause investors to lean toward another policy hold in March and boost the USD. In this scenario, EUR/USD could come under heavy bearish pressure heading into the weekend. Conversely, a disappointing NFP print of 30,000 or less could trigger a USD sell-off and allow EUR/USD to turn north.
The Relative Strength Index (RSI) indicator on the daily chart dropped below 50 for the first time since late November, and EUR/USD closed below the 20-day SMA for four consecutive days, reflecting a buildup of bearish pressure. In case the pair drops below the 100-day Simple Moving Average (SMA), technical sellers could remain interested. On the upside, 1.1740 acts as dynamic resistance, and if EUR/USD manages to stabilize above this level, it could gather recovery momentum and target 1.1800, followed by 1.1870.
Conclusion
In conclusion, the upcoming Nonfarm Payrolls report has the potential to significantly impact the US Dollar and the EUR/USD pair. Economists’ predictions and analysts’ insights suggest that the report could lead to heightened volatility in the USD, and investors should be prepared for potential market reactions. The technical outlook for EUR/USD indicates a buildup of bearish pressure, but a significant upside surprise in NFP could boost the USD and put pressure on the EUR/USD pair.
