November 2, 2012
We´ll be trading the US NFP (Nonfarm Payroll) Employment Change, it is the focus news release for the week. Here´s the forecast:
8:30am (NY Time) US NF Employment Forecast 120K Previous 114K
8:30am (NY Time) US Unemployment Rate Forecast 7.9% Previous 7.8%
Deviation: 70K (BUY USD 190K / SELL USD 50K)
8:30am (NY Time) US NF Employment Forecast 120K Previous 114K
8:30am (NY Time) US Unemployment Rate Forecast 7.9% Previous 7.8%
Deviation: 70K (BUY USD 190K / SELL USD 50K)
DEFINITIONMeasures 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.
The Trade PlanTodays NFP Employment Change release is forecasted at 120K. The Unemployment Rate is expected to tick up slightly at 7.9% after the sharp drop in September. If we get a significantly lower release on the NFP (50K or worse) and slightly higher Unemployment Rate (8.1% or more), I´d be looking to SELL the USD against stronger currencies as speculation for Feds to launch more easing should dominate the market. On the other hand, if we get a strong NFP release (180K or better) and the Unemployment Rate remains at or below 8.2%, USD could strengthen and I would BUY USD against other weaker currencies.
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.
UPDATE ON NOV. 1, 2012 8:30pm EST
The ADP NFP came in on Thursday at 158K vs 138K of expectation, which means we are likely going to see a slightly better NFP release tomorrow… Considering the fact that ADP just changed the way they measure these figures in October, I’d say it is possible the the ADP report could be right on the money. Looking at the revisions, which came in at 88K vs the 162K, you’d think that it was an extremely negative number, but taking account that if ADP were to use the same methodology as before, the revision would have been around 116K versus 162K instead, although slightly negative, but definitely not even in the same ballpark… and talking about the old versus new, wouldn’t the ADP release today be somewhere around 190K using the old methodology? I guess you can understand why the market was positive after the ADP today.
The ADP NFP came in on Thursday at 158K vs 138K of expectation, which means we are likely going to see a slightly better NFP release tomorrow… Considering the fact that ADP just changed the way they measure these figures in October, I’d say it is possible the the ADP report could be right on the money. Looking at the revisions, which came in at 88K vs the 162K, you’d think that it was an extremely negative number, but taking account that if ADP were to use the same methodology as before, the revision would have been around 116K versus 162K instead, although slightly negative, but definitely not even in the same ballpark… and talking about the old versus new, wouldn’t the ADP release today be somewhere around 190K using the old methodology? I guess you can understand why the market was positive after the ADP today.
The ISM Manufacturing PMI also came in slightly better than expected, adding that the 4-week average Jobless Claim remains virtually unchanged, I believe NFP should be between 120K to 140K, considering we may see some public jobs cut.
All in all I stand by the plan to BUY around 190K and SELL around 50K. I believe there could be some pre-selling of JPY as a stronger USD and risk appetite boost from a strong US job’s number should help to weaken JPY… USDJPY may not be the best pair to trade, I’d probably be looking at GBPJPY or EURJPY instead (LONG).
Last by not least, with both China’s PMIs came in to the upside, I believe risk appetite sentiment is building momentum… We may see further upward breakouts in JPY crosses (short JPY) as that’s the trend now.
NFP Trading StrategyLet´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 (190K to 50K). Wait for a possible revision of the previous release number of 96K could be revised up, 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 slightly higher at 7.9%. 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 8.0%, then we should see a surge in risk appetite as traders very much like to see lower jobless rates.
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.
BOOKS
GREG SMITH is one of life’s smaller big winners. His ticket out of Johannesburg came from winning a scholarship to Stanford University; insight into a computerised application system opened the way to an internship at Goldman Sachs; and an understanding of its Darwinian hiring system led to a job, luxurious perks, and high pay. His 12-year career ended with a scathing denunciation of the bank on the editorial page of theNew York Times and the publication this week of a book whose title, “Why I left Goldman Sachs”, could spark an entire genre by disaffected drones in successful organisations.
A whispering campaign of sorts has undermined Mr Smith, suggesting he never really was up to Goldman’s standards. This is probably true, although a similar criticism could be made of everyone who ever worked there. And to Mr Smith’s credit, he left on his own terms, no small feat. Of the 75 college graduates recruited from his year, only 7 were still at the firm when he departed for the last time. No doubt others left voluntarily, but one theme that keeps popping up is that Goldman is a difficult place to join, and a difficult place to stay. Critics have panned the book for being short on killer details, but it provides a rare inside look into a career path to which many aspire: from nothing to Wall Street affluence.
It will also be read because of its characterisation of Goldman’s integrity. Where once it profited from helping clients prosper, the bank shifted, Mr Smith contends, into an entity that profited from clients. This sentiment was particularly evident, Mr Smith says, in the firm’s London office, where greed and self-interest ran riot and clients were derisively referred to as “muppets”, suggesting a childlike naivety that could be exploited. Mr Smith is stunned by a colleague who says it is easier to recover a lost reputation than lost principal.
Goldman denies this portrait. It reportedly scanned internal e-mails to see how often muppets were mentioned. Nearly all referred to last year’s film about Kermit and Miss Piggy. But the old business model of merely being an intermediary acting on behalf of clients does seem to have run its course. For Mr Smith, that is to Goldman’s discredit. But his book implicitly raises another question: why clients don’t wise up.''The Economist''
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