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 1K Previous -54K
8:30am (NY Time) US Unemployment Rate Forecast 9.7% Previous 9.6%
ACTION: 50K BUY USDJPY / -70K BUY GBPUSD
The Trade Plan
With today’s release, as per a special report by Bloomberg, the expectation ranges from -50K to +50K, counting on an increase in the private sector payrolls estimated at +77K versus the 67K release in August, and Census job in the public sector is expected at -78K. Market has shifted down its sentiment towards private sector jobs slightly after Wednesday's ADP report of -39K versus +10K of expectation.
The Unemployment Rate will be another important figure today as it is expected to rise to 9.7% from 9.6% in August (September release date). 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 it’s above the psychological 10.0% level.
Considering the disappointing tone during ECB Trichet’s interest rate speech and market movement in Thursday’s trading session afterwards, market is likely to remain neutral at the time of NFP release... We could see potential movement in either direction pending on the outcome of the release.
Here's the general plan: If we get a significantly lower release on the NFP (-70K or worse) and Unemployment Rate (9.7% or worse), I’d be looking to BUY JPY (SELL USDJPY, SELL GBPJPY) on a retracement. There might be a chance to go LONG on GBP/USD or EUR/USD as "delayed trades" because the immediate reaction to another disappointing NFP release would prompt traders to SELL USD against JPY. But after the initial spike focused on strong JPY is over, traders will turn towards LONG on EUR and GBP while selling USD.
On the other hand, if we get a positive NFP release (+50K or better) and the Unemployment Rate remains at 9.6% or better, JPY should weaken immediately as USD/JPY may recover and move above 84 throughout the trading session, and BOJ may just intervene taking advantage of a positive US data...
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 my detailed trading strategy for this release below…
The Market
If you remember what took place during last NFP release, market reacted with optimism towards USD and risk appetite until the release of ISM Non-Manufacturing PMI, which provided a reason for sharp reversal in the market.
We'll probably see similar reaction if we get around 50K, but because we won't have to deal with another high impact US news later on, market could strengthen and provide the much needed consolidation for the greenback.
Important Note: I believe the general market will be focused more on the Private Sector jobs, which are expected at a +77K, but with recent ADP data printing out a -39K vs 10KE, this number may disappoint and create some negative sentiment towards the USD.
Therefore, I'd advice everyone to focus on both headline NFP and Private Sector job growth. If we get around 100K+ in the private sector growth, I think market would really take that as a positive sign for the U.S. economy.
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 (-70K or +50K). We’ll wait for a possible revision to the previous release number, which is -54K, 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 9.7% from 9.6% 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 are extremely volatile, and those who are patient will always get a chance to enter with much better entry.
Additional Thoughts
With USD/JPY sitting at the psychological level of 82.30, with throwing distance of a new 15 year high level at 82.08 against USD, it is going to take a very strong momentum to break this level. With BOJ verbally making the 82.00 as the new line of defense, at break of this level we should see some significant gains in the JPY.
Another important factor is the expectation of Fed's QE 2 plan, which was the focus and primary reason for USD's decline in the past four weeks. If we do get a significant lower number, market may continue to sell-off USD until the Fed's November meeting...
If we do get better release number, then we'll have to wait for the Advanced GDP data for the 3rd Quarter of 2010, on Oct. 29. This will be a crucial piece of data as a better 3rd quarter GDP combining a strong NFP will surely change expectation for Fed assistance from sooner to later.
One last important note is that the Labor department will be issuing an initial estimate (a benchmark revision) of 12 months through March 2010's employment count. There is a possibility that according to the current model, we could get a 902K of overcount... This would be devastating for the USD, considering. However, if new measures and adjustments were used to recalculate this release, based on Labor Department's survey of households, this revision could even be an upward surprise... Therefore, I'd suggest to get ALL data before taking a trade.
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
Thanks,
8:30am (NY Time) US NFP Forecast 1K Previous -54K
8:30am (NY Time) US Unemployment Rate Forecast 9.7% Previous 9.6%
ACTION: 50K BUY USDJPY / -70K BUY GBPUSD
The Trade Plan
With today’s release, as per a special report by Bloomberg, the expectation ranges from -50K to +50K, counting on an increase in the private sector payrolls estimated at +77K versus the 67K release in August, and Census job in the public sector is expected at -78K. Market has shifted down its sentiment towards private sector jobs slightly after Wednesday's ADP report of -39K versus +10K of expectation.
The Unemployment Rate will be another important figure today as it is expected to rise to 9.7% from 9.6% in August (September release date). 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 it’s above the psychological 10.0% level.
Considering the disappointing tone during ECB Trichet’s interest rate speech and market movement in Thursday’s trading session afterwards, market is likely to remain neutral at the time of NFP release... We could see potential movement in either direction pending on the outcome of the release.
Here's the general plan: If we get a significantly lower release on the NFP (-70K or worse) and Unemployment Rate (9.7% or worse), I’d be looking to BUY JPY (SELL USDJPY, SELL GBPJPY) on a retracement. There might be a chance to go LONG on GBP/USD or EUR/USD as "delayed trades" because the immediate reaction to another disappointing NFP release would prompt traders to SELL USD against JPY. But after the initial spike focused on strong JPY is over, traders will turn towards LONG on EUR and GBP while selling USD.
On the other hand, if we get a positive NFP release (+50K or better) and the Unemployment Rate remains at 9.6% or better, JPY should weaken immediately as USD/JPY may recover and move above 84 throughout the trading session, and BOJ may just intervene taking advantage of a positive US data...
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 my detailed trading strategy for this release below…
The Market
If you remember what took place during last NFP release, market reacted with optimism towards USD and risk appetite until the release of ISM Non-Manufacturing PMI, which provided a reason for sharp reversal in the market.
We'll probably see similar reaction if we get around 50K, but because we won't have to deal with another high impact US news later on, market could strengthen and provide the much needed consolidation for the greenback.
Important Note: I believe the general market will be focused more on the Private Sector jobs, which are expected at a +77K, but with recent ADP data printing out a -39K vs 10KE, this number may disappoint and create some negative sentiment towards the USD.
Therefore, I'd advice everyone to focus on both headline NFP and Private Sector job growth. If we get around 100K+ in the private sector growth, I think market would really take that as a positive sign for the U.S. economy.
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 (-70K or +50K). We’ll wait for a possible revision to the previous release number, which is -54K, 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 9.7% from 9.6% 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 are extremely volatile, and those who are patient will always get a chance to enter with much better entry.
Additional Thoughts
With USD/JPY sitting at the psychological level of 82.30, with throwing distance of a new 15 year high level at 82.08 against USD, it is going to take a very strong momentum to break this level. With BOJ verbally making the 82.00 as the new line of defense, at break of this level we should see some significant gains in the JPY.
Another important factor is the expectation of Fed's QE 2 plan, which was the focus and primary reason for USD's decline in the past four weeks. If we do get a significant lower number, market may continue to sell-off USD until the Fed's November meeting...
If we do get better release number, then we'll have to wait for the Advanced GDP data for the 3rd Quarter of 2010, on Oct. 29. This will be a crucial piece of data as a better 3rd quarter GDP combining a strong NFP will surely change expectation for Fed assistance from sooner to later.
One last important note is that the Labor department will be issuing an initial estimate (a benchmark revision) of 12 months through March 2010's employment count. There is a possibility that according to the current model, we could get a 902K of overcount... This would be devastating for the USD, considering. However, if new measures and adjustments were used to recalculate this release, based on Labor Department's survey of households, this revision could even be an upward surprise... Therefore, I'd suggest to get ALL data before taking a trade.
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
Thanks,
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