3 things to consider ahead of the August 2022 NFP report

The first Friday of the month has arrived, which means that the employment data in the United States is the main piece of economic data to be released. Economists expect the US economy to have added 295k jobs in August, following 528k jobs in July.

Given the latest data released since the last NFP report, the chances are that this report will surprise to the upside. As such, the risk heading into the release is that the US dollar’s rally will continue, and some kind of short squeeze is likely.

Speaking of the US dollar’s rally, the USD/JPY climbed above 140 for the first time in more than two decades. All other majors suffer as well, and emerging markets currencies feel the hit the most.

US ISM Manufacturing PMI shows a strong employment component

Ahead of every NFP report, some economic data offers important clues regarding employment in the United States. One of them is the ISM Manufacturing PMI.

It came out at 52.8 for August, positively surprising market participants.

New orders, production, supplier deliveries – they all rose in August. On top of that, inflation declined.

But what matters in interpreting the NFP is the employment component. It rose by 4.3% in August to 54.2, well into expansionary territory.

Claims for unemployment benefits have declined lately

Another piece of economic data pointing to a strong NFP report is the initial claims for unemployment benefits. They fell for the third consecutive time in the week ending August 27, and the four-week moving average is -4k.

Revisions to past data

At every NFP report, revisions to past data play an important part in the price action that follows. Sometimes they are even more relevant than the actual data, given that traders already have an educated guess regarding what to expect from the jobs market in the month that just ended.

Therefore, look for revisions, if any, to hold the key for the next US dollar move this Friday.

Summing up, the bias is that the US economy has added more jobs than forecasted, and investors will use any temporary weakness in the US dollar to establish new long positions.