Trading The U.S. Nonfarm Payroll 06/04/10

8:30am (NY Time) US NFP      Forecast 515K       Previous 290K
 (Unemployment Rate 9.8%)
ACTION: USD/JPY        BUY 600K           SELL 450K

We’ll be trading the NFP release today, which is expected at +515K with a previous release of 290K.  If you remember what took place during last NFP release, market reacted with extreme risk aversion sentiment despite of the surprise NFP release by positive 100K of deviation, and that’s mainly due to the unexpected rise in Unemployment Rate to 9.9% from 9.7%…

Furthermore, recent comments from Fed. Chairman Bernanke focused on the high rate of Unemployment, which is imposing “heavy costs” on the economy, and today’s Unemployment Rate release will surely be the focus of the market if we were to get a surprise release.  I would actually pay more attention this release more than the actual NFP figure as we may see another heavily manipulated market.

Looking at the NFP release, we have see a steady push for risk appetite sentiment throughout the week, and in my opinion, it was attributed to market pricing in ahead of the release, resulting a much weaker JPY, which is trading at 92.70 level at the time of writing this analysis. 

Considering this push of 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 if Unemployment Rate were to rise again…

Closer look at the NFP estimate reveals that the bulk of the increase is from Census hiring, an estimated of 420K, which makes private sector jobs increase of only 95K out of the 515K forecast, and considering 55K release from the ADP figure yesterday, we could see somewhat an inline with expectation release.  Of course with a strong number such as 515K, market will not be easily impressed, but easily to disappoint.  Therefore, I’d want to see 600K of increase before looking to BUY USD, but I’d BUY JPY on a less deviation.

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 (600K or 450K).  We’ll wait for a possible revision to the previous release number, which is 290K, 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 expected to drop down to 9.8% from 9.9% prior.  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 the market.  As long as we don’t go over the 10.0% psychological level, I think traders may not focus exclusively on this release.  However, if we do get over the 10.0% level, I’d probably be looking for a SELL on USD/JPY or other JPY crosses and Yen should strengthen.

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:

1. US Nonfarm Payroll NFP Employment Change 03/05/2010
2. US NFP Nonfarm Payroll Employment Change 04/02/10
3. US NFP (Nonfarm Payroll) Employment Changes 12/04/09
4. Forex News Trading US NFP (Nonfarm Payroll) Employment Change 03/04/11
5. Forex News Trading Nonfarm Payroll Employment (NFP) 02/04/11
6. Forex News Trading US Nonfarm Payroll Employment 07/08/11
7. Forex Trading Strategy For Nonfarm Payroll Employment Change (NFP) 07/02/10
8. Forex News Trading NFP Nonfarm Payroll Employment Plan 10/08/10
9. US NFP (Nonfarm Payroll) Employment Changes 02/05/10
10. Forex Strategy For US NFP (Nonfarm Payroll) Employment Change 08/05/11

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