Nonfarm Payroll Report May Disappoint On Friday…

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All signs are now pointing to a disappointing Nonfarm Payroll Report this coming Friday, March 7, 2014, as both PMIs and the ADP NFP reports show significantly weaker (or unchanged) employment activities for the month of February due to severe weather conditions.  However, the main issue for Forex traders is what will the Federal Reserve do as this could be a third straight month of worse than expected Nonfarm Payroll release that will not only drag down the Employment average significantly, but also calls in the question whether or not Bernanke’s decision into tapering back in December was the right one…

Before we answer that, let’s take a quick look at some of the reasons for a significantly lower NFP forecast this Friday:

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  • (US) FEB ADP EMPLOYMENT CHANGE: +139K V +155KE
    • Prior ADP Employment Change revised lower from +175K to +127K
  • (US) FEB ISM NON-MANUFACTURING COMPOSITE: 51.6 V 53.5E
    • Prices Paid: 53.7 v 57.1 prior
    • New Orders: 51.3 v 50.9 prior
    • Employment: 47.5 v 56.4 prior
    • Inventories: 50.5 v 50.5 prior
  • (US) FEB ISM MANUFACTURING: 53.2 V 52.0E; PRICES PAID: 60.0 V 57.4E
    • New Orders Index: 54.5 v 51.2 prior
    • Production index: 48.2 v 54.8 prior
    • Employment Index: 52.3 v 52.3 prior
    • Inventories index: 52.5 v 44.0 prior

As we can clearly see, Employment Index remained unchanged for the Manufacturing sector but dropped significantly for the Non-Manufacturing sector.  Considering that the US economy is made up with 79.1% in the services sector, a sharp drop in the Employment index would severely affect Friday’s Nonfarm Payroll report, to say the least.  Chief economist Mark Zandi of Moody’s rating agency commented today that:

February was another soft month for the job market. Employment was weak across a number of industries. Bad winter weather, especially in mid-month, weighed on payrolls. Job growth is expected to improve with warmer temperatures

He went on further and stated that:

Back of the envelope calculation is for the Feb nonfarm payroll to come in at 130K but risks are tilted to the downside (vs 150Ke currently)

In essence, Friday’s Nonfarm Payroll report could come in about 20~30K less than expectation, but still maintain above the 100K conservative estimate, and with Fed chief Yellen having prepared the market ahead with the “severe weather impact” clause during her testimony in front of Congress, I don’t really expect any major shifts in Fed’s policy as a result of the report; as a matter of fact, tapering at measured steps is going to continue, unless NFP were to average below 100K for 6 months or more…

Furthermore, the unemployment rate could remain at 6.6% or lower, judging from the weekly jobless claims.  The 4-weeks average now sits around 338.25K, which is essentially unchanged compared to the previous 4-week average…  I would still be looking to go LONG on the USD, especially against JPY and CHF (as all three currencies are safe-haven currencies) after the dip as market settles from the shock of a worse than expected NFP release…  Of course, if ECB Draghi were to disappoint the market during Thursday’s ECB Press Conference, then you can also add SELL EURUSD to the list.

Ultimately market should settle back and USD will be well supported, the key is to take advantage of this opportunity and position profitable trades .

Thanks,

 

henry-sig

 

 

 

 

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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.

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