8:30m (NY Time) US NFP Forecast 185K Previous -36K
(Unemployment Rate 9.7%)
ACTION: SELL 100K USD/JPY BUY 250K USD/JPY
We’ll be trading the NFP release today, expected at +185K, with a previous release of -36K. If you remember what occurred during the last NFP release, the market reacted extremely positively for both USD and risk appetite sentiment, as the market was originally expecting a much worse release due to the severe weather. Still, NFP came out better than expected, with a better release on the Unemployment Rate by 0.1%…
USD then went on a bullish rally as the fundamental outlook of the U.S. partially because of the NFP, partially because of the uncertainty of other economies (Greece anyone?), making USD a much better choice or the “lesser evil” choice.
With this NFP release, we could see another push for USD, as this may be the first of a series of positive releases in the U.S. employment sector. As Fed. Chairman Bernanke stated previously that FOMC would be looking to tighten its monetary policy only after job growth, and this certainly should stir speculation up for a stronger USD.
The question now is not if the release will be positive but how positive it will be. Out of the 62 analysts surveyed by Bloomberg, the consensus was 185K positive releases. This is due to many factors, including the recent ISM Purchasing Manager’s Index, weekly drop in unemployment claims, government Census hirings, and the Labor Dept’s data on the rising trend in factory, manufacturing, and service-related jobs.
However, the only argument for a possibly worse release rests on the Wednesday ADP NFP release, which came out at 23K on a +40K expectation. But with ADP’s track record on predicting NFP releases, we could chalk this release up to possible data errors…
Therefore, remember the heavy risk appetite movement throughout the week before the release. We could see some “buy on the rumor and sell on news” reaction after the release if we get somewhat in line with expectations, especially with the reduced liquidity condition in the market during this holiday weekend…
Let’s talk about how to trade this release: We’ll wait for the numbers to come out, but we will not take any trade YET, even if we get our tradable figures (100K or 250K). We’ll wait for a possible revision to the previous release number, which is -36K, as the market usually overreacts with the Revision, and chances favor for this trade to work out if we do not get conflicting releases between the revision and the actual release; at this point, still, stay out of the market.
Then the next step is to wait for the Unemployment Rate, which is at 9.7%. If the Unemployment Rate were to surprise higher, we’d have to make an executive decision at the time of the release and see what the primary focus of traders is. If we don’t get back above the 10.2%, the market will probably pay more attention to the NFP release.
After all of the numbers have been released. Wait for the market to push… then be patient and wait for a decent retracement before getting in. Look for recent support/resistance areas for entry, as high-impact news with various components will usually be extremely volatile. Those who are patient will always get a chance to enter at a much better entry.
“Measures the change in the number of employed people during the previous month, excluding the farming industry. A rising trend has a positive effect on the nation’s currency. Job creation is an important indicator of economic health because consumer spending, which is highly correlated with labor conditions, is a large portion of GDP. This report is the first of the month that relates to labor conditions, making it susceptible to big surprises.”