US NFP is expected to be around 236K, and with the Feds’ use of “patience” in their monetary policy, it’s going to take a huge surprise for the market to change its sentiment, and considering that any strong shocks (whether positive or negative) in the labor market will have that effect, we’ll trade this release using the plan below:
8:30am (NY Time) US NF Employment Forecast 236K Previous 252K
8:30am (NY Time) US Unemployment Rate Forecast 5.6% Previous 5.6%
Deviation: 70K (BUY USD 306K / SELL USD 166K)
The Trade Plan
Today’s NFP Employment Change release is forecasted at 236K. The Unemployment Rate is expected to be at 5.6%. If we get a significantly lower release on the NFP (166K or worse) and slightly higher Unemployment Rate (5.6% or more), I´d be looking to SELL the USD against stronger currencies as speculation for Feds to potentially delay the timing for the first rate hike. On the other hand, if we get a strong NFP release (306K or better) and the Unemployment Rate falls or remain at 5.6%, USD could strengthen and I would BUY USD against other weaker currencies (use CSM or recommended pairs above).
If we get a conflicting release, then well wait and see how the market reacts first. If there is an overwhelming sentiment driving the market, well get plenty of opportunities for an entry if we just wait for 5 minutes after the release; you´ll get a much clearer view.
Outlook score is derived from market sentiment, focus, and economic indicators for the currency. It represents the long-term trend of the currency and its market perception. In short, a strong Outlook Score means more long-term demand for the currency, and a weak Outlook Score is the opposite.
TO BE UPDATED ON February 5, 2015
NFP Trading Strategy
Let´s talk about how to trade this release: We´ll wait for the numbers to come out but continue to hold on a trade, Even if we get our tradable figures (301K to 161K). Wait for a possible revision of the previous release number of 252K, and market usually overreacts with the Revision and chances favor that a solid trade will present itself if we don’t get a 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 expected to be at 5.6%. If the Unemployment Rate were to surprise higher, we’ll have to make a decision based on the market sentiment coming into this release… Of course, if Unemployment rate were to fall below 5.4%, then we should see a surge in USD as traders speculate Fed accelerate tapering process.
After all of the numbers have been released, wait for the market to push and wait patiently for a decent retracement before getting in. Look for recent support/resistance areas for entry as a high impact news with various components are extremely volatile, and those who are patient will always get a chance to enter with a much better entry.
US NFP Employment measures the change in 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, makes up a large portion of GDP. This report is the first of the month that relates to labor conditions, making it susceptible to big surprises.