US Nonfarm Payroll NFP Employment Change 03/05/2010

8:30m (NY Time) US NFP      Forecast -56K       Previous -20K  (Unemployment Rate 9.8%)
ACTION:        SELL -120K USD/JPY                 BUY 20K USD/JPY

We’ll be focusing on the NFP release today, which is expected at -56K with a previous release of -20K; if you remember what happened last NFP, you’d know that the market reacted to the NFP with an initial risk appetite sentiment as the Unemployment Rate went down to 9.7% (10.0% expected), but turned into risk aversion as both benchmark revision and actual release figures brought concerns over the recovery (or lack of) in the job’s market…

Here are some of the arguments for a worse than expected NFP release: ADP NFP released earlier this week on Wednesday came out inline with expectation at -20K; White House spokesperson Larry Summers warned the public over the possible worse than expected Job’s figures in NFP from the “blizzards that affected much of the country” during the month of February; historical data going back 3 decades (as reported by Bloomberg) shows weather effects could depress payroll count by as much as 290K.

Here are some of the arguments for a better than expected NFP release: ISM Manufacturing PMI Employment component grew the fastest pace in five years; surprise better than expected release in the services sector ISM Non-Manufacturing PMI; Jobless Claim showing a slow yet steady decline, with this week’s release at 469K, a reduction of 29K from previous release…

Weighing on the seasonal factors, I believe we’ll probably have a slightly worse than expected release… but remember the consensus expectations for this NFP has been revising almost daily, starting around -2oK on Monday March 1, to the time of writing this analysis, we are looking at -56K of forecast…

With the actual figure possibly going either way, let’s talk about how to trade this release: We’ll wait for the numbers to come out, but will not take any trade YET, even if we get our tradable figures (-120K or 20K).  We’ll wait for a possible revision to the previous release number, which is -20K, 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 9.8%.  If the Unemployment Rate were to surprise higher, we’ll have to really make an executive decision at the time of the release and see what is the primary focus of traders.  As long as we don’t get back above the 10.2%, I think 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 a high impact news with various components will usually be extremely volatile, and those who are patient will always get a chance to enter at much better entry.

Of course, as usual, I will trade this release live and post the recording back in this blog.  Therefore, stay tuned.

DEFINITION

“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.”