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Cliff Wachtel
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Cliff Wachtel, CPA, is currently the Chief Analyst of anyoption.com, a leading binary options broker, and Director of Market Research, New Media and Training for Caesartrade.com, a fast growing forex and CFD broker. He is also the author of The Sensible Guide To Forex, and publisher of... More
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The Sensible Guide To Forex: Safer, Smarter Ways To Survive & Prosper From The Start
  • US MONTHLY JOBS REPORT PREVIEW & TRADING IDEAS 0 comments
    May 6, 2011 5:50 AM | about stocks: UUP, UDN, FXE, ERO, URR, ULE, EUO, DRR, FXA, FXB, FXC, FXD, FXF, FXEN, FXY, JYF, AUNZ, CYB, GLD, CNY, USO, DUG, USL, NBO, DBV, ICI, CEW, SLV, OIL, SPY, SDS, RSW, BXDC, SPXU, SH, DIA, EWC, EWA, TLT, XHB, ITM, IGOV, VGK, TBT, GSG, DBC, CORN, ICN, SZR, BZF, GRU, DAX-OLD, FRC, DB, SAN, BNO, ENIA

     A Brief Overview Of The US NFP And Unemployment Reports And Ideas About How To Trade The News For Both Binary Options And Spot Market Traders Of Forex, Indexes, And Commodities

     

    The monthly non-farm payrolls report is usually one of the most market moving events of the month. Thus it gets a lot of attention, though it’s rare that the market accurately predicts the outcome, so surprises and volatility are common, making this a classic new trade.

     

    Binary options traders have a big advantage trading news because their decision making process is much simpler than that of spot market traders. The availability of hourly expirations means binary option traders can also exploit very short term moves with ease. We’ll discuss this in depth in our coming special report: Binary Options Pros and Cons. Coming soon to http://globalmarkets.anyoption.com, under the special reports tab.

     

    Strategy Points To Consider

     

    Here are the key points to prepare yourself and guide your trading strategy.

     

    Bearish Signs Outweigh Bullish Evidence

     

    Over past several months the NFP data has trended above 200K, suggesting that labor demand is finally accelerating above the 150K replacement rate as US economy continues its slow recovery. However, the recent worsening of key US economic statistics has markets concerned that expansion and labor market in April may have cooled. Consensus estimates have been cut to 185K new jobs - below the key 200K level that indicates continuing slow jobs recovery.

     

     

     

    Bearish


    The most bearish sign of all was the huge miss in Wednesday’s ISM Non Manufacturing report: 52.8 vs. 57.9 expected and 57.3 prior which fell at the sharpest monthly drop in over 2.5 years.

     

    Worse, the jobs component, which tends to be one of the better predictors of the actual NFP result, also declined to 51.9 from 53.7. At least it remains above the key 50 level indicating that labor demand is still expanding, though now at an even slower rate.

    Wednesday’s weekly jobless claims and the ADP data were also ominous. The 4 week average in the weekly jobless claims saw a very sharp jump of 22,250 with latest weekly number rising to 474K - well above the key 400K mark that indicates net positive job growth.  The ADP report also showed a pullback in demand to 179K jobs.

     

    Bullish

    The Monster.com index rose another 7% higher in April suggesting that at least online, the demand for jobs, continues to grow

     

    The Challenger Layoffs report declined by 12% in April, but that maybe more of an indication of lack of firing rather than any positive evidence of growth.

     

    Consumer confidence has been trending higher.

    Conclusion


    Overall the April jobs picture looks worse as rising energy costs sap discretionary income and business’s resources needed to expand.

     

    The overall balance of leading indicators suggests that labor growth may have dropped below the200K mark in April, perhaps as low as 150K or less for the month, which would suggest an overall loss of jobs.    


    How To Trade The USD And Other Assets  

    The USD has been rallying in the past days on risk aversion, so a really bad figure could benefit the USD in the short term, because interest rate expectations are already so low markets already don’t expect any tightening for the rest of the year.

     

     

    Thursday’s dovish ECB remarks already have the EUR/USD in retreat and further bearish news in the US could provide additional momentum to that move, and also pressure other risk currencies such as Aussie and Loonie.

     

    The recent dollar weakness has been driven by the assumption that global growth will continue on approximately 3%+ pace forcing most of the G-10 central bank to tighten while the Fed remains stationary.

     

    If tomorrow's NFP show a material slowdown in US growth that could undermine the optimism that has been driving risk assets higher ever since the FOMC’s last meeting and announced continued easy money policy.


    One key pair to watch is the USD/JPY which fell the psychologically important 80.00 barrier in today's trade and may test the 79.00 figure if the NFP report prints materially worse.    


    Scenarios

     

    Here are some possible scenarios for the USD and other assets

    NFP strongly beats expectations, prints over 250k AND Unemployment Rate Unchanged

     

    USD: Over the rest of the US trading session, the USD would likely drop as ongoing risk asset rally continues, though the USD might catch a short bounce because this might revive faint hopes for faster tightening from the Fed.

     

    Other Risk Assets: Bullish, expect major stock indexes and risk currencies to bounce over the rest of the US session.

    NFP very weak, less than 150k AND Unemployment Rate ticks Higher

     

    USD jumps as EURUSD and other risk assets sink over the rest of the Friday trading session as risk aversion continues. However the USD may suffer vs. the JPY and CHF, the other safe haven currencies against which the USD continues to fall. While a weak job figure means no tightening anytime soon, expectations for that are already minimal.

     

    Other risk assets: Bearish, expect major stock indexes, commodities, and risk currencies to fall over the course of the trading session

    NFP result is inconclusive: Around 200k, Unemployment Rate Increases

     

    USD, other risk asset reaction unclear.

     

    Our Take

     

    Remember that the USD remains fairly beaten down and thus sensitive to any USD-positive news. The most likely such news will be risk aversion news. Odds favor a middling to weak jobs report, and thus favor more USD rally in the short term. That would play into existing short term trends. The USD has rallied over the past day mostly due to ECB head Trichet’s dovish remarks and profit taking on risk assets as so many of them are at multi-year highs.

     

     

    DISCLOSURE/DISCLAIMER: THE ABOVE IS FOR INFORMATION PURPOSES ONLY. READERS ARE SOLELY RESPONSIBLE FOR THEIR OWN TRADING DECISION. AUTHOR HAS NO RELEVANT POSITIONS

    Stocks: UUP, UDN, FXE, ERO, URR, ULE, EUO, DRR, FXA, FXB, FXC, FXD, FXF, FXEN, FXY, JYF, AUNZ, CYB, GLD, CNY, USO, DUG, USL, NBO, DBV, ICI, CEW, SLV, OIL, SPY, SDS, RSW, BXDC, SPXU, SH, DIA, EWC, EWA, TLT, XHB, ITM, IGOV, VGK, TBT, GSG, DBC, CORN, ICN, SZR, BZF, GRU, DAX-OLD, FRC, DB, SAN, BNO, ENIA
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