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JOBS, JOBS, JOBS: So you're saying there's a chance ...

|Includes: EUO, FXC, ProShares Ultra Euro ETF (ULE)

Today is the big test – time to see if we can guess with any accuracy the US Nonfarm Payrolls number and then predict the market’s reaction to said number. Luckily it’s multiple choice ... so there’s a chance we get it right.

Before we sift through our options, let’s look at a chart of the US dollar index with Nonfarm Payrolls reporting days circled:
 


Three times this year, the US dollar began a sustained move (on or right around the release of the report) in the opposite direction of the current daily trend. On two occasions the clearly established trend was impacted very little.

Now we have a US dollar that seems to us to have moved rather straight and rather quickly in one direction. And after yesterday’s price action – major reversals lower relative to the US dollar – maybe some others are adopting that view too. Maybe the buck is ripe for a trend change after today’s release.

Ok, here we go ... multiple choice:

A) In-line with expectations: an addition of private sector jobs is expected to be canceled out by a loss in government jobs to yield a flat payrolls number; unemployment is expected to tick higher by 0.1%.

Expected impact: Little to none; the market just keeps on moving based on current dynamics which currently looks to be an ebb and flow between risk-appetite vs. overdone price action.

Preferred trade right now: long FXC

*Note that Canada released employment numbers this morning that showed a 6.6k loss in payrolls, worse than the expected addition of 10k. Although last months strong payrolls growth helps soften the worse-than-expected news this month.

 
B) Better-than-expected: the actual addition of private sector jobs outpaces the government jobs lost, or outpaces the expected addition of private sector jobs.

Expected impact: dollar positive near-term; dollar negative longer-term – the market sees a less distressed US economy and willingly casts aside the QE argument* that’s been building high atop the dollar in recent weeks. But after a much needed correction the dollar likely falls victim to a resurgent risk appetite.

*Note that Federal Reserve member Fisher commented just this week that the market may have too quickly jumped on the idea that the Fed was going to embark on additional QE.

Preferred trade right now:  long EUO


C) Worse-than-expected: the private sector adds far fewer jobs than the expected 75,000 ... or even worse a decline in payrolls.

Expected impact: dollar negative near-term; dollar positive longer-term – the market’s expectations of a distressed US economy are confirmed and QE stays firmly on the table. But if this poor outlook for the US economy lingers than it should influence global economic expectations, specifically the decoupling argument, and undermine risk appetite.

Preferred trade right now: long ULE

Line up. Place your bets. If you care what we think, put us down for A). Which leaves us open for extra credit if we can get the ebb and flow of risk appetite vs. recent price action correct. Many (and we are in this camp) seem to think this move in currencies and risk assets gone too far too fast. Our risk alarms are telling us that things are going to turn around sharply very soon – they must.

But we all know the markets never “must” do anything. In fact, that may be reason enough to think that a real correction is still a week or so off on the horizon.




Disclosure: long EUO