Henry Liu
Former FPA Special Consultant
- Messages
- 473
We'll be trading the US NFP (Nonfarm Payroll) Employment Changes, it is the most volatile news release for the week as traders and their cousins all sit around in front of their PCs preparing to jump in... Here's the forecast:
8:30am (NY Time) US NFP Forecast -63K Previous -125K
Unemployment Rate Forecast 9.6% Previous 9.5%
ACTION: USD/JPY BUY +1K SELL -140K
The Trade Plan
With today’s release, as per a special report by Bloomberg, the expectation ranges from -30K to +130K, counting on an increase in the private sector payrolls estimated at +90K versus the 83K release in June. This number has been revised up slightly just after ADP’s report released earlier this week, which came out at a 42K versus an estimate of 38K.
Of course, the Unemployment Rate will be another important figure today as it is expected to rise to 9.6% from 9.5% in June. I believe that in the event we get a conflict of releases, such as a better NFP figure but worse Unemployment Rate, market will react more to the Unemployment rate if both releases show large deviations, especially if it’s above the psychological 10.0% level.
Considering some degree of consolidation that we saw during Thursday’s trading session after ECB Trichet's cautious speech, JPY could fall under the old “Buy on Rumor, Sell on News” effect against USD if we were to get an as expected release, or -63K; therefore, I’d lean towards selling JPY (BUY USD/JPY) if both NFP and Unemployment Rate come out close to expectation…
However, if we get a significantly lower release on the NFP (-140K) and Unemployment Rate, I’d be looking to BUY JPY on a retracement. There might be a chance to go LONG on GBP/USD or EUR/USD as another disappointing NFP release could mean a bearish trend is developing as traders may SELL USD on the perception of a possible slowdown in U.S. economic recovery or double dip recession. But this movement may be delayed as the initial market movement will be focused on strong JPY, which will in turn drive all other major crosses lower.
On the other hand, if we get a positive NFP release (+1K) and the Unemployment Rate remains at 9.6% or at 9.5% unchanged level since last release, JPY should weaken immediately as USD/JPY may recover and move above 87 or possibly 88 throughout the trading session, eventually head back on to 90 in the next few weeks… This could potentially turn into a long-term trade as other JPY crosses may provide much better profit level (GBP/JPY for instance).
If we get a conflict release, we will wait and see how the market reacts first. If there is an overwhelming sentiment driving the market, there will be plenty of opportunities for entry. If you just wait for 5 minutes before making an entry, you'll get a much clearer view.
Please read below on my trading strategy for this release...
The Market
If you remember what took place during last NFP release, market reacted with risk aversion sentiment as the actual figure missed expectation by about -19K, causing stronger demand for safe-haven JPY across the board, and aided to the rise of the Euro as traders are now concerned over US economic recovery.
Since this NFP release will be the second release in 2010 with a negative figure, it makes sense to see more general bearish sentiment for the USD if we get a negative surprise today.
Considering that this NFP release is likely to show over 144K of Census worker cuts, leaving about 200K more temporary Census workers in the work force, market is likely to remain bearish for future upcoming NFP releases as Census hiring is likely to keep on distorting the overall release.
One interesting observation is today's ECB Press Conference where Trichet semi-disappointed the market by not being more optimistic over the recent EUR/USD recovery. I think this is going to mark the top for EUR/USD and as a side note, this is where I'd be looking for a long-term SHORT on EUR/USD pair.
NFP Trading Strategy
Below is a general guideline on how to trade NFP release. This is what I do with EVERY NFP release.
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 (-140K or +1K). We’ll wait for a possible revision to the previous release number, which is -125K, 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 be at 9.6% from 9.5% 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.
Here's a live video for my NFP trading back in April.
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Additional Thoughts
With USD/JPY sitting at the psychological level of 85, a 15 year high level against USD, it is going to take a very strong momentum to break this level. I have been looking to BUY the pair primarily since earlier on this week, and at the test of this level, without a strong fundamental news support, I believe it could provide an opportunity for a strong bounce back...
Furthermore, Japanese Trade Minister recently expressed his concern over the strength in Japanese Yen. Other officials in Japan have brought on possible intervention possibilities if the market hit 85... so the scenario is simple, if we break this level with strong momentum, expect to see 84 or 83. If we bounce back from here, then 87, 88 is not out of the question for the next few days.
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.”
Historical Chart & Data for US NFP Employment Change
Thanks,
8:30am (NY Time) US NFP Forecast -63K Previous -125K
Unemployment Rate Forecast 9.6% Previous 9.5%
ACTION: USD/JPY BUY +1K SELL -140K
The Trade Plan
With today’s release, as per a special report by Bloomberg, the expectation ranges from -30K to +130K, counting on an increase in the private sector payrolls estimated at +90K versus the 83K release in June. This number has been revised up slightly just after ADP’s report released earlier this week, which came out at a 42K versus an estimate of 38K.
Of course, the Unemployment Rate will be another important figure today as it is expected to rise to 9.6% from 9.5% in June. I believe that in the event we get a conflict of releases, such as a better NFP figure but worse Unemployment Rate, market will react more to the Unemployment rate if both releases show large deviations, especially if it’s above the psychological 10.0% level.
Considering some degree of consolidation that we saw during Thursday’s trading session after ECB Trichet's cautious speech, JPY could fall under the old “Buy on Rumor, Sell on News” effect against USD if we were to get an as expected release, or -63K; therefore, I’d lean towards selling JPY (BUY USD/JPY) if both NFP and Unemployment Rate come out close to expectation…
However, if we get a significantly lower release on the NFP (-140K) and Unemployment Rate, I’d be looking to BUY JPY on a retracement. There might be a chance to go LONG on GBP/USD or EUR/USD as another disappointing NFP release could mean a bearish trend is developing as traders may SELL USD on the perception of a possible slowdown in U.S. economic recovery or double dip recession. But this movement may be delayed as the initial market movement will be focused on strong JPY, which will in turn drive all other major crosses lower.
On the other hand, if we get a positive NFP release (+1K) and the Unemployment Rate remains at 9.6% or at 9.5% unchanged level since last release, JPY should weaken immediately as USD/JPY may recover and move above 87 or possibly 88 throughout the trading session, eventually head back on to 90 in the next few weeks… This could potentially turn into a long-term trade as other JPY crosses may provide much better profit level (GBP/JPY for instance).
If we get a conflict release, we will wait and see how the market reacts first. If there is an overwhelming sentiment driving the market, there will be plenty of opportunities for entry. If you just wait for 5 minutes before making an entry, you'll get a much clearer view.
Please read below on my trading strategy for this release...
The Market
If you remember what took place during last NFP release, market reacted with risk aversion sentiment as the actual figure missed expectation by about -19K, causing stronger demand for safe-haven JPY across the board, and aided to the rise of the Euro as traders are now concerned over US economic recovery.
Since this NFP release will be the second release in 2010 with a negative figure, it makes sense to see more general bearish sentiment for the USD if we get a negative surprise today.
Considering that this NFP release is likely to show over 144K of Census worker cuts, leaving about 200K more temporary Census workers in the work force, market is likely to remain bearish for future upcoming NFP releases as Census hiring is likely to keep on distorting the overall release.
One interesting observation is today's ECB Press Conference where Trichet semi-disappointed the market by not being more optimistic over the recent EUR/USD recovery. I think this is going to mark the top for EUR/USD and as a side note, this is where I'd be looking for a long-term SHORT on EUR/USD pair.
NFP Trading Strategy
Below is a general guideline on how to trade NFP release. This is what I do with EVERY NFP release.
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 (-140K or +1K). We’ll wait for a possible revision to the previous release number, which is -125K, 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 be at 9.6% from 9.5% 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.
Here's a live video for my NFP trading back in April.
<object width="480" height="385"><param name="movie" value="http://www.youtube.com/v/HROiRBiESAU&hl=en_US&fs=1"></param><param name="allowFullScreen" value="true"></param><param name="allowscriptaccess" value="always"></param><embed src="http://www.youtube.com/v/HROiRBiESAU&hl=en_US&fs=1" type="application/x-shockwave-flash" allowscriptaccess="always" allowfullscreen="true" width="480" height="385"></embed></object>
Additional Thoughts
With USD/JPY sitting at the psychological level of 85, a 15 year high level against USD, it is going to take a very strong momentum to break this level. I have been looking to BUY the pair primarily since earlier on this week, and at the test of this level, without a strong fundamental news support, I believe it could provide an opportunity for a strong bounce back...
Furthermore, Japanese Trade Minister recently expressed his concern over the strength in Japanese Yen. Other officials in Japan have brought on possible intervention possibilities if the market hit 85... so the scenario is simple, if we break this level with strong momentum, expect to see 84 or 83. If we bounce back from here, then 87, 88 is not out of the question for the next few days.
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.”
Historical Chart & Data for US NFP Employment Change
Thanks,
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