Early forecasts are for the U.S. economy to have lost another 175,00 jobs in September which would be the smallest amount in thirteen months adding to the signs that the current recession is ending. However, it would be the 21st straight month that Non-Farm payrolls declined and would push total job losses over 7 million.
[U][B]Trading the News: Change in US Non-Farm Payrolls[/B][/U]
[U][B]What’s Expected[/B][/U]
Time of release: [B]10/02/2009 12:30 GMT, 08:30 EST[/B]
Primary Pair Impact : [B] EURUSD[/B]
Expected: -175K
Previous: -216K
[U][B]Impact the US NFP report had on EURUSD through the last 2 months[/B][/U]
[U]August 2009 US Change In Non-Farm Payrolls [/U]
U.S. non-farm payrolls slipped 216K in August amid forecasts for a 230K drop in employment, while the annual rate of unemployment jumped to a 26-year high of 9.7% from 9.4% in July as discouraged workers returned to the labor force. As the labor market deteriorates, the Federal Reserve held a cautious outlook for the economy, stating that the downturn in employment could lead to a “slow recovery,” and the central bank is widely expected to keep borrowing costs at the record-low and is likely to maintain its $1.75T in asset purchases over the coming months in order the steer the economy out of the worst recession since the Great Depression. As a result, businesses may continue to scale back on production and employment as policy makers see a risk for a protracted recovery, and the central bank is likely to hold a dovish outlook for future policy as growth prospects remain weak.
[U]July 2009 US Change In Non-Farm Payrolls[/U]
The U.S. economy lost 247K jobs in July amid expectations for a 325K drop in non-farm payrolls, while jobless rate fell for the first time since April 2008 as discouraged workers left the labor force, and fading demands for employment may continue to weigh on the economic outlook as households scale back on consumption. Moreover, the FOMC forecasts the annual rate of unemployment to reach 10% by the end of the year, while Treasure Secretary Geithner anticipates the jobless rate to peak in the second-half of 2010, and businesses may continue to scale back on production and employment throughout the second half of the year as policy makers see a risk for a slower recovery. As the government takes unprecedented steps to stimulate the ailing economy, the extraordinary efforts should help to stem the downside risks for growth and inflation, and policy makers may continue to ease policy further to foster a sustainable recovery.
[B]What To Look For Before The Release[/B]
Traders with access to market depth information via the FXCM Active Trader Platform may use it to gauge the potency of the economic data release as well as to shed some light on the market’s directional bias. Increasing volume ahead of the announcement will telegraph likely follow-through behind whatever move is to materialize, while an imbalance in available liquidity on the Bid versus the Offer side of the market will tell us the direction major institutions are likely favoring ahead of the announcement:
[B]How To Trade This Event Risk [/B]
Early forecasts are for the U.S. economy to have lost another 175,00 jobs in September which would be the smallest amount in thirteen months adding to the signs that the current recession is ending. However, it would be the 21st straight month that Non-Farm payrolls declined and would push total job losses over 7 million. Indeed, we saw today that continuing unemployment claims remained above 6 million despite falling by 70,000 from a week ago. However, that was of the few positive readings from early indicators along with a 30.2% decline in layoffs from a year ago according to the Challenger job cut report. A rise in initial jobless claims to 551,000 from 534,000, a smaller than expected improvement in the ADP private employment report of -254,00 versus forecasts of -200,000, and a slip in the employment component of the ISM manufacturing report all make the case for a weak employment report. This will fuel the growing concerns that the recovery will stall without a return of domestic spending.
Trading the given event risk could be tricky as the dollar’s negative correlation to risk appetite has continued but recently stronger than expected labor reports have spurred bullish dollar sentiment. Therefore, if payrolls contract 100K or less or by more than 220K, we will look for a red, five-minute candle following the release to generate a sell entry on two-lots of EUR/USD. Once these conditions are met, we will set our initial stop at the nearby swing high, or a reasonable distance taking market volatility into account, and this risk will establish our first target. Our second objective will be based on discretion, and we will move the stop on the second lot to breakeven once the first trade reaches its target in order to preserve our profits.
On the other hand, an expected improvement could fuel risk appetite but keep the current relationship with the greenback and risk intact. Therefore, we will favor a bearish forecast for the reserve currency, and will follow the same setup for a long euro-dollar trade as the short position mentioned above, just in reverse.
[I]To discuss this report contact David Song, Currency Analyst: <[email protected]>[/I] or contact David Song, Currency Analyst: <[email protected]>