Last week’s major news was the Nonfarm Payroll report on Friday which possibly changed the short to long term trend of USD as we saw traders bought USD on the back of NFP release:
NFP Nov. 2009 -11K versus -119K (estimate)
NFP Oct. 2009 -111K (revision) versus -190K release
Unemploy Rate 11/2009 10.0% versus 10.2% (estimate)
What was more interesting with this data was the 3-month average trend of NFP with past revisions actually netted a positive +97K of release!
Adding the fact that the Birth/Death adjustment of this month is only +30K, and if we were to get the same 86K of last month, we could practically have a positive release for November; therefore, with the seasonal adjustments for December, we could almost be certain that there will be a positive NFP release, and it will be confirmed on the second Friday of 2010.
Of course, because of the caliber of this release, speculations of a rate hike by the FOMC are at all time high. There are talks among analysts of possible first quarter rate hike, as we saw how USD gained against JPY immediately after the release. Billions and Billions of JPY were sold off in exchange for USD, as the outlook for the US has turned extremely positive.
Although we shouldn’t jump to a quick conclusion based on just one NFP release, but with seasonal adjustments and the expected temp workers being hired for the holiday season, we are looking at a real possibility for a positive NFP release for December of 2009. This will not only send a message to the world that the Federal Reserve now has justification for an earlier than expected rate hike, but it will also shift global focus from using USD as a carry currency back to JPY, leaving USD the one reserve currency that everyone wants.
It is very interesting seeing how the market changed from Thanksgiving weekend to last Friday. With Dubai World’s risk aversion news to the gradual recovery of the equity market and risk appetite sentiment, and ending with the most positive news we’ve seen in months and a strong trend changer for the U.S. Dollar.
What I’d be watching out for is the 3-mo Libor Rate for USD. This will be my primary focus in determining if indeed USD is recovering. If the Libor rate of USD start to surpass that of the JPY, then I think not only we’ll start to see carry trades (JPY Crosses) return, but also second wind for the equity markets to continue their bullish trends.
Another interesting observation if the fact that on Friday both USD and Stock market were gaining, showing a strong positive correlation. This is something that we haven’t seen since the beginning of 2009, as the USD always behaved with an inverse correlation. This may be, as analysts are saying, a change of a new trend. As USD become more influenced by fundamental news releases, we are going to see a more stable market and possibly with more opportunities to trade news releases, as opposed to a highly volatile sentiment driven market.
Therefore, I’d be looking closely over the future US news releases as they will reflect the underlying sentiment of the market. As we are in this transitional period, if indeed the trend is changing, we should use extreme caution when picking pairs to trade. As with hindsight with Friday’s NFP release, maybe a SELL trade on both EUR/USD and GBP/USD pairs would have yielded better results, had we known that the market would act out of character, or in character.
– Henry Liu
Related posts:
- Forex Video & Analysis For U.S. Nonfarm Payroll Employment Change (NFP) 08/06/10
- Forex Analysis For US Nonfarm Payroll Employment Change 10/07/11
- Detailed Forex News Analysis For US NFP Nonfarm Payroll Employment 11-05-10
- US NFP (Nonfarm Payroll) Employment Analysis & Trade Plan 09/03/10
- Forex News US Nonfarm Payroll 06/03/11 Analysis
- Forex News US Nonfarm Payroll (NFP) Employment 05/06/11 Analysis
- Forex News Nonfarm Payroll (NFP) Employment 04/01/11 Analysis
- Forex News Trading NFP Nonfarm Payroll Employment Plan 10/08/10
- US NFP (Nonfarm Payroll) Employment Changes 02/05/10
- Forex News Trading US NPF Nonfarm Payroll Employment 09/02/11
{ 2 comments… read them below or add one }
Hi,
the last NPF release is one of the best news a i have ever traded.it came as a great surprise to me.i traded LOTN(Live on the news),it was incredible at the time i exited my position.I wonder how that of Jan 2010 would look like.AT the moment the US economy from all indications,available,is fast recoverying from the prolonged meltdown.
Nonye:
It looks that way, however it may be too soon to say what is likely to happen. Although I tend to agree with you, we need to see more NFP releases to make educated guesses… in my opinion.
Henry