Surprise US Nonfarm Payroll Release Cuts QE3 Probability…

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(US) JULY CHANGE IN US NONFARM PAYROLLS: +163K V +100K

  • CHANGE IN PRIVATE PAYROLLS: +172K V +110KE
  • Change in Manufacturing Payrolls: +25K v +10KE
  • Birth-Death Adjustment: +52K v +124K prior
  • Prior Change in Nonfarm Payrolls revised lower from +80K to 64K
  • Prior Change in Private Payrolls revised lower from +84K to 73K
  • Prior Change in Manufacturing Payrolls revised lower from +11K to 10K

(US) JULY UNEMPLOYMENT RATE: 8.3% V 8.2%E

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  • Underemployment Rate: 15.0% v 14.9% prior
  • Civilian labor force Participation Rate 63.7% v 63.8% m/m
  • Number of unemployed: 12.8M v 12.7M prior 
  • Civilian labor force: 155.0M v 155.2M prior

(US) JULY AVG HOURLY EARNING M/M: 0.1% V 0.2%E; Y/Y: 1.7% V 1.7%E; AVG WEEKLY HOURS: 34.5 V 34.5E

How to interpret this figure?

US Nonfarm Payroll printed a surprise 163K, beating an optimistic 100K estimate, confirming the Federal Reserve’s view that the recent down-turn in the employment sector is due to seasonal factors.  Of course, this is not good news for investors expecting handouts from the Feds as this positive release is perhaps the most compelling argument that the economic recovery is still on going, and a full-scale stimulus may not be the right instrument for the market at this time. 

As a matter of fact, considering the current political climate in the U.S. and the need for the Federal Reserve to assert the image of independence, most analysts were predicting that if the Feds were to announce QE3, it would be in September, because anything closer to the November Election would not be desirable… Now, after the positive release of NFP today, which effectively takes the pressure off the Feds, focus will be on the upcoming Jackson Hole meeting and the September NFP… If the next NFP comes out above 100K and Bernanke does not mention QE3 in Jackson Hole, then I believe QE3 will not be launched this year.

So how should we trade the USD going forward?  I am inclined to believe that USD will strengthen as QE3 is temporarily out of the equation, but the caveat is that EUR could also strengthen on Draghi’s comments in his ECB Press Conference as the market had a change of hearts, reversed its initial sell-offs, and pushed EURUSD back above the 1.2380 levels at the time of writing this article.  I am thinking that the market is considering that effectively ECB is the lender of last resort, with unlimited funding to support the Euro, and the size of ESM or EFSF are now irrelevant… Therefore, I’d probably pick and choose the best pairs to buy USD against, GBP looks promising, so does AUD and JPY… (AUD and JPY are both overvalued).

 

FUNDAMENTALS
Forex Weekly Outlook May 22 ~ 26, 2017
Forex Weekly Outlook – May 15 ~ 19, 2017
IMF cuts global growth projections amid China slowdown, rock-bottom oil prices
World economy risks another crash unless they continue to support growth with low interest rates: IMF
Central banks cannot keep pumping cheap credit into series of asset bubbles
About Henry Liu

My name is Henry Liu and I am a Forex Trader and Mentor. I help traders achieve consistent income trading Forex while spending less time trading. My focus in trading is a combination of Fundamental Analysis, Technical Analysis, and Market Sentiment. Far too many retail Forex traders concentrate on just one aspect of trading, technical analysis, and ignore everything else; it is my goal (and vision) to educate every trader on how to take advantage of news trading and become more balanced traders.

You can find more information about me on my Google Profile.

Comments

  1. Thank You Henry for your nice explanation. So henry its mean when we are in risk aversion and at that time if we found a good statistical data from US like NFP we can expect USD will be sold off isn’t it? And henry can you please give us some sort link or data where we can understand this fundamental thing clearly. That would be very kind of you. I always visit your site and get very very useful information that help us a lot. Thank You once again for your kind words.

    • I don’t really think we can quantify the risk sentiment, but by looking at what the market is doing, one could come to the conclusion. If USD and JPY are both being sold off, then chances are that it is risk appetite. If the opposite is true, where we see surge in both USD and JPY, then it is most likely risk aversion. Market used to follow the fundamentals, but ever since the subprime mortgage crisis, followed by EU debt crisis, we are seeing more and more emphasis placed on risk sentiments. But I believe it will soon be over as the market has been adjusting back to fundamentals in the last 6 to 8 months or so. I think the key is to really listen to the market first, then act. The days of whoever acts first (spike trading), wins, is long gone in my opinion, the key now is to understand the macro economics and then position your trades accordingly… just my 2 cents.

  2. You forgot to mention the impact after the release of NFP on Friday. Dollars was sold off broadly if you can see the Dollar Index.

    • Yes, Cai you are right. i dont understand why USD sold off. Henry can you tell us about this? And as you have mentioned we can buy USD so can we sell EUROUSD now?

      • USD was sold off as risk appetite once again dominated the market. US Treasuries are the safest instruments in the world, and when the market is in fear, they buy treasuries, which means they are buying US Dollar. With a strong NFP release, market is no longer in fear, they want more return for their investments, so they sold off US Treasuries (USD) and put their monies in stocks, commodities, etc… thus USD is sold off. This may be hard to understand, but the fundamentals for the USD have actually gotten better despite the fact that market sold off USD initially.

        As stated in the article, we will need to pick and choose which currencies to trade the USD with. EUR is obviously not a good choice as explained above, so I would recommend to go with GBP, JPY, or even AUD as those currencies have more potentials, at least for the time being.

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