This Friday's jobs report is important, but it's not the most crucial one

By Justin Pugsley

Friday is the monthly U.S. nonfarm payrolls – arguably the most important data release on the calendar. Every month each number takes on a greater significance with the U.S. Federal Reserve looking to start reining in its quantitative easing program probably beginning in March 2014.

The closer that date looms the more significant each number becomes. Indeed, those numbers have the power to be complete game changers for the forex market. An unusually strong reading and the markets will start to price Fed tapering in as a definite, which would see the U.S. dollar (NYBOT:DXZ13) strengthen and hit risk currencies hard. And the opposite if it is a particularly weak number.

This probably means that Q1 2014 numbers will potentially have the biggest impact of all.

For the November figures being released this Friday, various surveys suggest 160,000-180,000 jobs were added with the jobless rate falling to 7.2% from 7.3%. A number below 200,000 and within the expected range would not be seen as a game changer in terms of the direction of the USD.

Eagerly awaiting NFP

U.S. debt ceiling talks

Hitting an unemployment rate of 6.5% was touted by the Fed as a basis for rethinking its monetary policy. However, that has recently become a bit more complicated. The Fed has started picking up on the low labour participation rate, which is now under 63% and the lowest in decades, and wants to boost it.

So this Friday's jobs number is important, but probably not the most important one. Before beginning its tapering the Fed will want to be sure that the economy is on a sustainable path to recovery and that the pace of jobs creation is well established.

One factor the Fed will be acutely aware of is the coming wrangles over the U.S. debt ceiling, which will take place in early 2014. This could involve another shutdown of the U.S. government along with the usual political posturing and concerns over its impact on the economy.

If jobs aren't being created at a significant pace by then, the Fed may once again decide to postpone its tapering for fear that combined with a U.S. government show down it might be too much for the economy to take.

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