Trading the News: US Change In Nonfarm Payrolls
What is Expected
Time of release: 11/02/2007 12:30 GMT, 08:30 EST
Primary Pair Impact : EURUSD
Expected: 82K
Previous: 110K
How To Trade This Event Risk
Though the fear of major revisions and negative payroll releases have faded for the non-farm payroll indicator, the heightened market moving potential for the report isn’t likely to weaken for Friday’s number. For the October print, the market is already primed for a new, major leg for the dollar. Market anxiety was built in the lead up to the Wednesday’s GDP/FOMC mix. The growth report was strong with a 3.9 percent pace of annualized expansion – a figure that beat expectations and marked a more than one year high – yet the reaction to the data was anchored due to the looming event risk in the rate decision. The Fed announcement was a relative disappointment with a mere 25 basis point rate cut and commentary that curbed the possibility of further hikes over the next few quarters. However, those market participants banking on volatility won’t call it a week until the major event risk on the US docket has been fully expunged. Looking at the official consensus for the headline employment report, forecasts are once again middle of the road at 88,000 (once again hovering around the popular 100,000 outlook). The broad expanse of complementary indicators were averaging out with a modest pickup. The US consumer confidence employment component ticked lower for the third month and the four-week average for initial claims hit its highest level since April; but the ISM manufacturing jobs sub-gauge, the ADP payrolls, Challenger Job Cut, Monster and Hudson reports all nudged higher. Given this tepid setup, the hope for a major move this week will likely vanish if the NFPs can’t surprise on the headline or revision.
Trying to trade a long dollar position on the employment data should be done conservatively considering the steady downtrend the currency. On the fundamental front we will look for consistency across the various indicators: a strong NFP number for October, an upward revision to September, perhaps a downtick in the jobless rate and sustained rebound in the annual earnings report. Of course, the headline number and revision take precedence, but the fewer points of support for the dollar, the more suspect dollar momentum will be. On a strong fundamental release and a green five-minute candle, we will look to take a short EURUSD position on two lots at the close of the 12:35 GMT bar. The initial stop will be at the nearby swing high (or reasonable distance) and a first target will equal risk. The second lot’s objective will be discretionary and its stop should be moved to break even when the first lot takes profit.
Consistency in a disappointment would be the best policy for a short-dollar trade as well. However, a negative October report (or September revision especially) could easily over shadow the rest of the data. The same strategy applies for the short, just in reverse.
Written By: John Kicklighter, Currency Analyst for DailyFX.com