Thursday, July 7, 2011

US NFP (Non Farm Payrolls) Data Release - July 8, 2011

We’ll be trading the US NFP (Nonfarm Payroll) Employment Change, it is the focus news release for the week. Here’s the forecast:

8:30am (NY Time) US NF Employment Forecast 87K Previous 54K

8:30am (NY Time) US Unemployment Rate Forecast 9.1% Previous 9.1%

ACTION: 160K BUY USDJPY / 20K BUY EURUSD

The Trade Plan

Todays NFP Employment Change release is forecasted at 87K. The ADP employment report revealed a surprising increase in private job growth rate and hinted that the “soft-patch” in May is likely to be over. The Unemployment Rate is expected to hold at 9.1%. If we get a significantly lower release on the NFP (20K or worse) and Unemployment Rate (9.1% or worse), I’d be looking to BUY EURUSD on retracements. On the other hand, if we get a positive NFP release (160K or better) and the Unemployment Rate remains at 9.1% or better, JPY should weaken immediately as USD/JPY may recover and move to the 82.50 level throughout the trading session.

If we get a conflicting release, then well wait and see how the market reacts first. If there is an overwhelming sentiment driving the market, well get plenty of opportunities for an entry if we just wait for 5 minutes after the release; you’ll get a much clearer view.

Please read my detailed trading strategy for this release below.

The Market

Thursday’s ADP employment report showed that the private sector created a net of 157K new jobs in June, despite of Challenger’s scheduled job cuts increase over 11% when compared to May. It does seem that recent soft-patch in job creation is just temporary, which may be confirmed with today’s NFP release.
Considering July’s ISM PMI’s showing growth in both Manufacturing and Non-Manufacturing Sector, with the former surprising the market with a much stronger reading, this release may very well be “encouraging” to the say the least.

Furthermore, recent Mortgage applications, New and Existing Home Sales, and Durable Goods figures all showed strong activities, which are indicative of a strong recovery in the economy. However, I would like to point out that it is still the case of “too little too late” in the job story for the U.S. and the Feds… Unless we start to see strong and consistent NFP readings month after month, USD is likely to stay soft.

NFP Trading Strategy

Let’s talk about how to trade this release: We’ll wait for the numbers to come out but continue to hold on a trade, Even if we get our tradable figures (160K to 20K). Wait for a possible revision of the previous release number of 54K as the market usually overreacts with the Revision and chances favor that a solid trade will present itself if we dont get a 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 remain at 9.1%. If the Unemployment Rate were to surprise higher, were faced with an imperative decision at the time of the release.
After all of the numbers have been released, wait for the market to push and wait patiently for a decent retracement before getting in. Look for recent support/resistance areas for entry as a high impact news with various components are extremely volatile, and those who are patient will always get a chance to enter with a much better entry.

Additional Thoughts

We do have several choices to go LONG on USD and I believe USDJPY and AUDJPY may provide some of the best movements as both pairs are likely to benefit from BOJ intervention threats and USD strength.

Pre-News Consideration

I strongly suggest that any pre-news trade be closed at this moment. As with NFP releases, liquidity will die down from now until the actual release time because most traders are likely to sit on the sideline.

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.

Thanks,