We´ll be trading the US NFP (Nonfarm Payroll) Employment Change, the US NFP report is the main focus of the week as traders look at this data to gauge current US and global economic recovery. Postive US data will eventually lead to positive global data… Here´s the forecast:
8:30am (NY Time) US NF Employment Forecast 160K
Previous 157K
8:30am (NY Time) US Unemployment Rate Forecast 7.9%
Previous 7.9%
Deviation: 70K (BUY USD 240K / SELL USD 90K)
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 PlanToday’s NFP Employment Change release
is forecasted at 160K. The Unemployment Rate is expected
to be at 7.9% after remaining at the same levels in the past
few releases. If we get a significantly lower release on the
NFP (90K or worse) and slightly higher Unemployment Rate
(8.0% 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 (240K or better) and the
Unemployment Rate falls below 7.8%, 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.
ADP Nonfarm Payroll came out at 198K versus 170K on Wednesday with a backward revision of 192K to 215K, which means by adding the deviation of both the current month and last month, we have a combined surprise of 51K; add that to the 4-Week Average Initial Jobless Claims figure of 349K, we are definitely looking at a strong NFP and an inline Unemployment Rate releases…
Furthermore, both ISM PMIs beat expectations this month, especially the Non-manufacturing PMI, which beat the highest readings in a year (Feb 2012); the Employment Subindex of the Non-Manufacturing PMI was also positive at 57.2 vs 57.5 prior, and that means we could get similar employment gains in the services sectors as last month; and since the services is 72% of the total employment, this further supports a strong NFP release.
Following the optimism of the ECB Press Conference, I believe the following scenarios for the EURUSD:
- Worse Than Expected NFP – should drive EURUSD up as continued support from the Feds via unlimited QE should help to weaken the USD and strengthen the Euro.
- Inline With Expectation NFP – should drive EURUSD up as traders shift their focuses back to the positivity of the Euro, and of course, the very fact that the U.S. economy is steadily recovering should fuel risk appetite, thus driving the USD weaker in the process as USD is a safe-haven currency.
- Better Than Expectation NFP – should drive EURUSD down in the short-term, depending on the release. If the figure is extremely positive, somewhere around 270K ~ +300K, then we should see speculation rise of an early ending to QE3, thus driving the USD much stronger. Of course, if we see 200K ~ 220K release, USD should rise a bit but will fall around the US open as market focus on risk appetite.
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 (238K to 88K). Wait for a possible revision of the previous release number of 158K, 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 7.9%. 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 7.6%, 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.
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