US NFP (Nonfarm Payroll) Employment | October 22, 2013 | Currency News

US NFP is perhaps the most important release for the currency market due to potential impact on Federal Reserve’s monetary policy; however, with the government being shutdown for 16 days and the fact that Fitch Rating has put U.S. sovereign credit on watch negative. the Feds aren’t likely to start taper unless we get a huge upward surprise today…

8:30am (NY Time) US NF Employment Forecast 180K Previous 169K
8:30am (NY Time) US Unemployment Rate Forecast 7.3% Previous 7.3%
Deviation: 70K (BUY USD 250K / SELL USD 110K)

The Trade Plan
Today’s NFP Employment Change release is forecasted at 180K. The Unemployment Rate is expected to remain at 7.3%. If we get a significantly lower release on the NFP (110k or worse) and slightly higher Unemployment Rate (7.4% or more), I´d be looking to SELL the USD against stronger currencies as speculation for Feds to continue with QE should dominate the market. On the other hand, if we get a strong NFP release (250K or better) and the Unemployment Rate falls or remain at 7.3%, 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.

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Outlook Score 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.

UPDATED ON OCT. 21, 2013 9:30pm EST
Considering the NFP report was delayed for more than 2 weeks, and the fact that other independent agencies have already released their figures, it’s highly unlikely for the Nonfarm Payroll Report to surprise the market.  Of course, if it indeed does happen, we’ll definitely see very strong volatility following the release.

The ADP report released on October 3 showed that private payroll estimates is around 166K.  The ISM Non-Manufacturing PMI came in at 54.4 v 57.0 of estimate, and the Employment sub-index was significantly lower than the prior month, at 52.7 v 57.  Of course, considering that the Services sector (non-manufacturing) is over 70% of the U.S. economy, this data definitely does not support a strong surprise.

However, the ISM Manufacturing PMI came in at 56.2 v 55.0, with Employment sub-index of 55.4 v 53.5 prior, which may help to offset the bearish sentiment a little, but then of course, the manufacturing sector covers less than 20% of the US economy.

Other data such as the Challenger Job Cut came in at 40.3K v 50.4K, which meant that 10K people were able to keep their jobs for the month of September, and assuming we don’t get a huge surge in jobless claims, considering  that the Jobless number came in at 308K v 315K estimate for the first week of October, with the 4 week average at 305K v 308.7K, or the lowest since May 2007, the Unemployment rate should come inline with expectation, or right around 7.3%.

So here’s a brief list of some of the trading scenarios for today:

1. NFP over 225K – This would be very positive for the USD, and I’d go LONG on USDJPY immediately as expectation of Fed tapering before the end of 2013 will be at all time high.
2. NFP below 100K – This would be very negative for the USD.  Not only traders will go LONG on all risk currencies, but we should also see USD getting sold off sharply across the board.  On a long-term point of view, due to this horrific figure, Fed probably won’t taper until Q2 or even Q3 of 2014 in my opinion.

With the market being a bit doubtful over the Participation Rate and the Unemployment Rate, I would expect very little market momentum if we were to get better than 7.3% Unemployment Figure, but if this number were to drop, let’s say to 7.5%, it could have the same effect as having a 100K NFP release.  At any rate, unless we get a clear picture, we should stay clear of the market

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 (249K to 109K). Wait for a possible revision of the previous release number of 169K, 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 7.3%. 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 7.3%, then we should see a surge in USD as traders speculate Fed bond tapering in October.

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.

DEFINITION 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.

Thanks,