How To Trade The US Nonfarm Payrolls Report

[B]Trading the News: US Non-Farm Payrolls[/B]
[B][U]What is Expected[/U][/B]
Time of release: [B]09/07/2007 12:30 GMT, 08:30 EST[/B]
Primary Pair Impact : [B]EURUSD[/B]
Expected: [B]100K[/B]
Previous: 92K


[B]How To Trade This Event Risk[/B]
The fundamental consequence of the monthly non-farm payroll report has grown considerably since the August 3rd print of the July employment statistics. Since the last employment survey crossed the wires, bearish sentiment has washed over the dollar. Though the greenback has been propped up by a renewed interest in safe haven assets, the US economy itself has not escaped the heavy-handed effects of a credit-market crunch that has sent ripples across asset classes and national boarders. So far, only the most immediate effects of the disruption (wider credit spreads, a surge in volatility and big losses in equities and bond yields) have been accounted for. Now economists and traders are waiting for the pinch in the more-or-less objective fundamental indicators to guide forecasts of growth and interest rate policy. The Bureau of Labor Statistics? employment survey will be one of the first reports to offer reliable a reliable measure of the recent turbulence on a major economic player: the consumer. Expectations are still net positive with a 100,000 consensus; however, complementary data would suggest this outlook is very optimistic. Aside from the expected drop in finance and construction jobs related to the credit problems, the ISM services employment component dropped to its lowest level since December 2002 while the ADP figure marked a new four-year low 38,000 addition to private payrolls.
Trading a better than expected employment report has its advantages and its disadvantages. Supporting a strong reaction, much of the recent economic data may be setting unofficial expectations below the market consensus. On the other hand, an increase in NFPs would likely have to be substantial to overwhelm the growing fear in holding dollars with talking heads threatening recessions and the Fed appearing as if it is on the verge of cutting interest rates. Should payrolls print well above expectations and EURUSD produce a good red, five-minute candle, a short on two lots should be taken with a stop at the nearby swing high (be generous as this is a volatile release). The first target should equal risk, the second is discretionary. Raise the stop on the second half to break even when the first takes profit.
A weaker than expected BLS report may be downplayed given the bearish shadow over the US economy. To garner a genuine trade from the release, an NFP print below 50,000 (a contraction would be most effective) may be needed. To increase the chances for a successful trade, a jump in the unemployment rate or drop in average hourly earnings could help with follow through.