[B]Trading the News: US Change In Non-Farm Payrolls[/B]
[B][U]What’s Expected[/U][/B]
Time of release: [B]12/07/2007 13:30 GMT, 08:30 EST
[/B]Primary Pair Impact : [B]EURUSD[/B]
Expected: [B]80K[/B]
Previous: 166K
[B]
How To Trade This Event Risk[/B]
The top FX market-moving indicator has come around once again. The latest consensus for the Bureau of Labor Statistics’ non-farm payrolls report for November is calling for an 80,000 increase in national hires. Ironically, this is almost exactly the same forecast for the October report – the one that doubled expectations. Our rules and strategy for trading this event risk will be very much the same that is for most of our Trading the News reports, but looking back over the reaction to the previous three payrolls reports it is clear that the discretionary element of our trade needs to have a few conditionals. First, it is important to immediately take note of both the headline number and any revisions to the previous figures. If a headline print produces only modest surprise but a revision to the October report see a substantial adjustment, the latter will like be the market moving element of the data. Also, eye should be kept on the secondary labor data – the unemployment and the average hourly wage growth numbers. Finally, any exogenous adjustments like the one we saw in September (an 810,000 adjustment over the period from March 2005 to March 2006), should be noted. Heading into the Friday employment release, the usual battering of preview employment statistics already has the unofficial consensus aiming for a disappointment. Both the ISM manufacturing and services surveys’ employment components have cooled. Perhaps more concerning, the four-week moving average of the initial jobless claims report rose to its highest level since October of 2005, while continuing claims rose to a January 2006 high.
Discerning whether the NFP data is bullish or bearish will be the most difficult aspect of trading this event risk. However the data prints, it could be a vital clue for market participants and policy makers as to the health of the economy and whether speculation of a 50 basis point rate cut next week is reasonable. For a bullish dollar trade (short EURUSD), we will optimally look for a considerable upside surprise (75,000-plus) from the headline number and an equally impressive revision to the October number. If this the case and there is no other data interfering, we will look to go short two lots of EURUSD at market on the close of a red, five minute candle. Our initial stop will be set at the swing high (or reasonable distance) and our target on our first lot will equal its risk. The objective on our second lot will be discretionary and to preserve profit, we will move its stop to break even when the first lot reaches its target. If we are entered into a short position, it will be essential to note technical support in placing our targets.
Alternatively, with the data already lining up for a weak NFP report, we will need a considerably weaker than expected - perhaps negative - print to institute a long EURUSD position. We will follow the same strategy and rules for a long as the short layout, just in reverse.
