Correlation of Dow Jones to Non-Farm Payrolls (NFP)

Today marks the release of the U.S. Non-Farm Payrolls (NFP), a key labor market indicator that tends to generate high volatility in financial markets. This report, issued monthly by the Department of Labor, reflects the number of jobs created in the non-farm sector during the previous month and is a key determinant of the Federal Reserve's (Fed) monetary policy.

Report Expectations
The latest U.S. Nonfarm Payrolls (NFP) report, released on January 10, 2025, revealed an increase of 256,000 jobs in December 2024, exceeding market expectations that anticipated 160,000 new jobs. This increase represented the largest in nine months suggesting continued strength in the U.S. labor market. In addition, the unemployment rate declined to 4.1%, an improvement from the 4.2% recorded in November. Wage growth held steady, with average hourly earnings increasing by 0.3% month-over-month and 3.9% year-over-year. For the January 2025 report, to be released today, February 7, 2025, analysts are forecasting a slowdown in job creation. An increase of 170,000 jobs is expected, down from the number added in December. The unemployment rate is projected to hold steady at 4.1%. This moderation in job growth could reflect a normalization following earlier increases. A weaker-than-expected employment report could influence expectations about the Federal Reserve's monetary policy, potentially affecting the U.S. dollar and broader financial markets. Investors will be watching this data to assess economic health and adjust their strategies accordingly.

If the figures beat expectations, they could reinforce the Fed's stance of keeping interest rates higher for longer, which would benefit the US dollar and put downward pressure on risky assets. Conversely, a disappointing data could open the door to a tightening of monetary policy, weakening the dollar and supporting equities and commodities.

Impact on markets
1. US Dollar and Forex: If NFP beats expectations, this could lead to an appreciation of the USD, especially against EUR, GBP and JPY. If not, the greenback could lose ground, pushing pairs such as EUR/USD above key resistances.
2. Stock markets: Wall Street tends to have a mixed reaction to NFP. Strong data could generate concerns about a tighter Fed, affecting the S&P 500 and Nasdaq. On the other hand, weak data could generate optimism about a possible monetary easing.
3. Commodities: Gold tends to react in reversal to the dollar. If the NFP strengthens the USD, gold could retreat; if the data is weak, it could overcome key resistances. In oil, a strong reading could indicate higher energy demand, benefiting crude oil prices.

Dow Jones Industrial Average (Ticker AT: USAIND) Analysis
Non-Farm Payrolls (NFP) is a key event in particular, for the Dow Jones Industrial Average (DJIA), as it reveals the health of the U.S. labor market and can set the tone for stocks on Wall Street. A strong report could benefit many of the Dow30 majors, from Goldman Sachs to Caterpillar. However, that initial euphoria may quickly fade if investors begin to fear that the Federal Reserve will take this data as a reason to keep interest rates higher for longer. In that case, the Dow may turn downward, as a high rate environment makes financing for companies more expensive and reduces growth expectations. On the other hand, when NFP disappoints and shows lower job creation, the market reaction can be more complex. If the data suggests a controlled slowdown, the Dow could find support in the expectation that the Fed will loosen its monetary stance, which would reduce borrowing costs and stimulate business growth. However, if the report is too weak and points to a possible recession, panic may take hold in the markets, sending the Dow Jones into steep declines as investors seek refuge in safer assets such as gold or Treasuries. In short, the Dow Jones is particularly sensitive to NFP because it reflects the balance between growth and monetary policy. A figure that is too strong or too weak can generate sharp movements, while a figure in line with expectations tends to generate stability. That is why every NFP release is a time of high tension on Wall Street.

If we look at the chart, the latest NPF data supported the index and pushed it to the highs, and it is currently hitting resistance for the third time at 45,110 points at its current all-time high. If the payrolls data is as bad as expected, it is very likely that the price will fall again to test the 42,000 points being its support at 41,788.80 points. RSI is currently 61.57% overbought with only a few hours to go before the key event of the month. The long term Control Point (POC) is located in the 34,000 points zone, being this its previous accumulation zone. The current accumulation zone is located at the average of 39,500 points.

Conclusion
Today's NFP will play a crucial role in the market's perception of the direction of the Fed's monetary policy in which the trends on the dollar and on this index in particular may be affected in order to face the whole month, prior to the corporate results of the companies that make up the index.





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