Trading the News: Change in Non-Farm Payrolls

[B]What is Expected

Time of release[/B]: 08:30EDT; 13:30GMT 3/09/2007
Consensus expectation: 100k
Prior reading : 111K
Primary Pair Impact : EURUSD

Effect of Change in Non-Farm Payrolls on EUR/USD For Past 3 Periods

        [B]Data Released[/B]
        [B]Pips Change[/B]
   [B](1 Hour post event )[/B]
        [B]Pips Change[/B]
   [B](End of Day post      event)[/B]
           Jan. 2007
        02/02/2007 13:30 GMT
           Dec. 2006
        01/05/2007 13:30 GMT
           Nov. 2006
        12/08/2006 13:30 GMT

January 2007 Change in Non-Farm Payrolls
January NFP’s threw markets for a loop, as a clearly dollar-bearish headline figure sparked a EURUSD rally before a subsequent tumble. As has happened time and time again, large previous revisions overshadowed the front-month release, and December’s upward revision exactly offset January’s margin of disappointment. This dynamic only reinforces the notion that news-traders should wait several minutes before determining the most “correct” reaction to significant data releases. Late-day extension was relatively slow, but the EURUSD continued lower with very little retracement through the New York session close.

December 2006 Change in Non-Farm Payrolls
December’s NFP figures were entirely more straightforward, with a stronger-than-expected 167k gain compounded by an upward revision of November numbers. The dollar rally was immediate, with the EURUSD losing 77 points in the hour following the release. This arguably provided few opportunities to trade post-news, but the pair’s continued descent showed that sentiment remained unchanged through day’s end. A selling of small bounces was arguably the best strategy on the powerful NFP result.

November 2006 Change in Non-Farm Payrolls
November’s NFP data provided much the same reaction we saw following January’s figures. A strong headline forced an initial dollar rally, but downward revisions of previous figures completely offset the positive surprise. A EURUSD long order placed five minutes after the release could have proven quite profitable, as the pair went on to rally as many as 90 points before a subsequent tumble. The EURUSD went on to close much lower?likely a function of position squaring and profit-taking ahead of the weekend.

How To Trade This?
More than with any other release, traders should probably wait at least 5 minutes post-event to trade the Non Farm Payrolls release. It has been made clear time and time again that markets post initially strong reactions to any surprises in the headline result, but any revisions of the previous month’s figures arguably provide the best directional potential for this report. Both January and November reports show us that it was most profitable to fade the initial EURUSD move, but December’s price action serves as clear warning to the risks of an automatic trade against initial swings.
Specific levels to watch and directions
[B]Change in NFPs are Stronger - Higher Than Expectations

Change in NFPs are Weaker - Lower Than Expectations

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