How To Trade The US NFPs Release

Written by John Kicklighter, Currency Analyst, DailyFX
Thursday, 04 October 2007 13:14:56 GMT

Trading the News: US Change In Non-Farm Payrolls

What is Expected
Time of release: 10/05/2007 12:30 GMT, 08:30 EST
Primary Pair Impact : EURUSD
Expected: 100K
Previous: -4K


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How To Trade This Event Risk

The non-farm payrolls release has not only been the consistent top market mover for the US dollar, it is arguably the most influential fundamental indicator for the entire FX market. Further adding to the employment number’s clout, this month’s report comes just after the first negative print in four years. As such, many market participants, economists and policy makers believe the world’s largest economy is coming to a major turning point. For years, strong employment trends have supported the economy’s primary engine: consumer spending. Some estimates suggest non-farm payrolls have to grow by 100,000 each month just to absorb the growth in the labor pool and keep the jobless rate steady. Therefore, a trend in weaker monthly employment numbers would threaten consumer consumption habits, overall growth trends and ultimately the dollar itself. That being said, supplementary employment data released before the Bureau of Labor Statistics’ number is pointing to a strong number on Friday. Through September, initial jobless claims have fallen back to their lowest levels since May. According to the Challenger report, job cuts dropped 28.5 percent last month from a year ago. And, perhaps most encouraging, the ADP report and employment components of both the services and manufacturing surveys have seen higher than expected numbers.

An improvement from the August report certainly seems the direction recent employment indicators are pushing the payrolls report to. However, with expectations already hovering at 100,000 (a common consensus for this volatile report), the bar may already be set high. Therefore, a considerable upside surprise would be a good confirmation for a bullish event-driven report. With the proper fundamental lean, we will look for a five minute red candle to trigger a short EURUSD trade on two lots at market. The stop will immediately be placed at the swing high (or reasonable distance should the pivot be too far) and the target on the first lot will equal this risk. The objective on the second half will be based on discretion and the lot’s stop should be moved to break even if/when the first half makes profit.

A disappointing payroll number will be subjective. A miss of the 100,000 number may not do it. However, a print close to or below the zero mark will certainly generate a fundamental panic that the US economy will loose its principal engine of growth. The same entry rules apply for a long EURUSD trade as have been laid out for a short position, just in reverse.

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