Will Non-Farm Payrolls Halt The Dollar's Momentum?

[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]05/02/2008 12:30 GMT, 08:30 EST[/B]
Primary Pair Impact[B] : EURUSD[/B]
Expected: -78K
Previous: -80K


[B]How To Trade This Event Risk [/B]

Last month’s Non-Farm Payroll disappointment provided the momentum that would eventually send the EUR/USD to eventually break the 1.60 barrier. The economy has given back over 70,000 jobs the last three months and expectations are that another 78,000 was lost in April. Total cuts may have exceeded estimates again, with Citigroup and Merrill Lynch leading the financial sector in announcing 23,000 layoffs in April. Meanwhile, jobless claims jumped to 380,000 and continuing claims rose over 3 million this week, both four year highs. The FOMC cut rates another quarter point at its April 30th meeting, bringing the total since September to 325 points and leaving the benchmark rate at 2.00%. The subsequent statements didn’t contain the degree of hawkish slant the markets were expecting, nonetheless the consensus is the MPC will pause their current easing policy. The initial dollar bearish reaction has since quelled, as traders have digested the comments further. The most noteworthy element was the omission of the words “downside risks to growth remain”, which signals the Fed may sit back and evaluate the impact of their recent actions before considering further cuts. Inflation is becoming a concern for policy makers as record oil and food prices continue to squeeze consumers. However, with two months until the next meeting, two more significant months of job losses may force the central bank to cut again.

The EUR/USD has fallen below the 1.550 price level as traders chose to focus on the recent increase in U.S. personal consumption rather than the dour employment data. The warning goes “don’t bet against the U.S. consumer for too long”, and with credit markets starting to stabilize and the Fed’s expected pause, traders are starting to heed it. Giving the recent dollar bullish trend, a small job loss may be sufficient to garner a long position, with any amount of job creation as a sure fire trigger. We would also look at the net job change absent the financial sector, which was directly impacted by the subprime crisis, for signs of job growth. Therefore, a loss of less than 25,000 jobs with job creation throughout the broader economy would be sufficient for a dollar bullish position, 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, another month of over 70,00 jobs lost will diminish expectations of a Fed pause. We will look for a inline or greater contraction in employment for a EURUSD long and will follow the same strategy as a short, just in reverse.