US NFP Nonfarm Payroll Employment Change 04/02/10

8:30m (NY Time) US NFP      Forecast 185K       Previous -36K
                                                                  (Unemployment Rate 9.7%)
ACTION:        SELL 100K USD/JPY                 BUY 250K USD/JPY

We’ll be trading the NFP release today, which is expected at +185K with a previous release of -36K.  If you remember what took place during last NFP release, market reacted extremely positive for both USD and risk appetite sentiment as the market was originally expecting a much worse release due to the severe weather condition, but instead NFP came out better than expected with also a better release on the Unemployment Rate by 0.1%…

USD then went on a bullish rally as the fundamental outlook of the U.S. partially because of the NFP, partially because of the uncertainty of other economies (Greece anyone?), making USD a much better choice or the “lesser evil” choice.

With this NFP release, we could see another push for USD as this may be the first of a series of positive releases in the U.S. employment sector.  As Fed. Chairman Bernanke stated previous that FOMC will be looking to tighten its monetary policy only after job growth, and this certainly should stir speculation up for a stronger USD.

I guess the question now is not if the release will be positive, but how positive will it be?  Out of the 62 analysts surveyed by Bloomberg, the consensus in at 185K of positive release.  This is due to many factors, including recent ISM Purchasing Manager’s Index, weekly drop in unemployment claims, government Census hirings, and the Labor Dept’s own data on the rising trend in factory, manufacturing, and service related jobs.

However, the only argument for a possibly worse release rests on the Wednesday ADP NFP release, which came out  -23K on a +40K of expectation. But with ADP’s track record on predicting NFP releases, we could chalk this release up on possible data error…

Therefore, remember the heavy risk appetite movement throughout the week prior to the release.  We could see some “buy on rumor and sell on news” reaction after the release if we get somewhat inline with expectation, especially with the reduced liquidity condition in the market during this holiday weekend… 

Let’s talk about how to trade this release: We’ll wait for the numbers to come out, but will not take any trade YET, even if we get our tradable figures (100K or 250K).  We’ll wait for a possible revision to the previous release number, which is -36K, as the market usually overreacts with the Revision and chances favor for this trade to work out if we do not get conflicting releases  between the revision and the actual release; at this point, still stay out of the market.

Then the next step is to wait for the Unemployment Rate, which is at 9.7%.  If the Unemployment Rate were to surprise higher, we’ll have to really make an executive decision at the time of the release and see what is the primary focus of traders.  As long as we don’t get back above the 10.2%, I think the market will probably pay more attention to the NFP release. 

After all of the numbers have been released.  Wait for the market to push… then be patient and wait for a decent retracement before getting in.  Look for recent support/resistance areas for entry as a high impact news with various components will usually be extremely volatile, and those who are patient will always get a chance to enter at much better entry.

DEFINITION

“Measures the change in number of employed people during the previous month, excluding the farming industry. A rising trend has a positive effect on the nation’s currency. Job creation is an important indicator of economic health because consumer spending, which is highly correlated with labor conditions, makes up a large portion of GDP. This report is the first of the month that relates to labor conditions, making it susceptible to big surprises.”

Related posts:

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Tagged as: bloomberg, Consensus Expectations, Consumer Spending, currencies, currency, economic health, economic recovery, Employment Changes, Farming Industry, GDP, ISM, Job Creation, Larry Summers, news release, NFP, Nonfarm Payroll, Npf, Payroll Employment, pre market, Previous Release, risk appetite, risk aversion, Sell Offs, Unemployment, Unemployment Rate, US, Weather