[B][U]Trading the News: US Change in Non-Farm Payrolls[/U][/B]
[B][/B]
[B][U]What’s Expected[/U][/B]
Time of release: [B]04/04/2008 12:30 GMT, 08:30 EST[/B]
Primary Pair Impact[B] : EURUSD[/B]
Expected: -40K
Previous: -63K
[B]
How To Trade This Event Risk [/B]
The past few NFP’s haven’t been particularly market moving with price action reacting in an counter intuitive manner. Depending on where you lay your focus, the data leading up to the next release has sent conflicting signals. Manufacturing and services both saw unexpected rebounds with both of their employment components making gains. The service industry’s decline in jobs created from an average above 100 the four months prior to one below 30, is the main reason the economy gave back jobs the past two months. Conversely, jobless claims rose above the 400 level for the first time since post Katrina, which is where it typically resides during recessions. The upcoming job data may serve as the tie breaker for investor sentiment on whether the economy has bottomed or heading into a full blown recession. It will also play a large role in the decision making of the FOMC at the their next policy meeting. Speculation has ranged that the MPC may cut rates anywhere from 25 to 50 points. However, a significant reversal in the labor market may afford the central bank the opportunity to allow their past measures to take effect before taking further action. Chairman Ben Bernanke caution that the economy may contract over the first half of this year, but was firm in his belief that his past actions and the upcoming fiscal stimulus package would provide growth in the second half of the year.
The EUR/USD price action has hovered around the 1.560 level despite positive U.S. and negative European (retail sales, confidence and services declined) fundamental data, the past few days. Traders may be waiting for the upcoming Non-Farm payroll release to decide their longer term view, which may create significant price action if it surprises in either direction. An unexpected creation in jobs would be enough for a long position, with a particular focus on the manufacturing and construction sectors, which have lost jobs the past six months. With a strong fundamental mix, we will look for red, five minute candle close for a short on two lots of EURUSD. Our initial stop will be set above the nearby swing high (or reasonable distance) and the first target will equal this risk. The second objective will be discretionary; and to protect against losses, we will move the second stop to break even when the first target is hit.
On the other hand, faltering employment could weaken two of the dollar’s most important fundamental components: interest rates and growth. We will look for a net contraction in employment for a EURUSD long and will follow the same strategy as a short, just in reverse.
