Thursday, August 4, 2011

US NFP Non Farm Payroll Employment Change - 5 August 2011

US NFP Non Farm Payroll Employment Change - 5 August 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 90K Previous 18K

8:30am (NY Time) US Unemployment Rate Forecast 9.2% Previous 9.2%

ACTION: 150K BUY USDJPY / 20K BUY EURUSD

The Trade Plan

Todays NFP Employment Change release is forecasted at 90K. The ADP employment report revealed a surprising increase in private job growth rate in July. The Unemployment Rate is expected to tick up slightly to 9.2%. If we get a significantly lower release on the NFP (20K or worse) and Unemployment Rate (9.2% or worse), I´d be looking to BUY EURUSD on retracements. On the other hand, if we get a positive NFP release (150K or better) and the Unemployment Rate remains at 9.2% or better, JPY should weaken immediately as USD/JPY may recover and move above the 80.50 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

Wednesday´s ADP employment report showed that the private sector created a net of 114K new jobs in July, despite of Challenger´s scheduled job cuts increase over 59% when compared to June, and at 60% increase when compared to July of 2010. It seems that the current global economic slowdown is lasting a bit longer than analysts previously predicted…

Considering August´s ISM PMI´s in both Manufacturing and Non-Manufacturing Sectors, having both missed expectations, it does not take a genius to see that with services sectors slowing down (90% of the economy) and the manufacturing sector shrinking, the general jobs market is likely to be stagnant as well…

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 (150K to 20K). Wait for a possible revision of the previous release number of 18K 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 9.2%. 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

USD/CAD is a slow moving currency pair, it will move on a strong deviation, but retracement is usually non-existent or very small… Therefore, if we get a strong release, especially when it is going with the pre-market trend, a sooner than later entry should add more pips to your account. Expect to see a spike down -> stall -> another spike down…

Pre-News Consideration

No Pre-news trading.

Definition

“Measures the change in number of employed people during the previous month. 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.”

by Henry Liu