Forex Trading Guide: U.S. April Jobs Report

Wondering if the Greenback is in for more heartbreak or if it could see better days ahead? The upcoming U.S. jobs release could have the answer, as it could give forex traders more clues on when the Fed might hike interest rates! Here’s my Forex Trading Guide for this much-awaited economic event.

What is this report all about?

us jobs dollarFor the newbie traders just tuning in, lemme tell you that the U.S. non-farm payrolls report or the NFP is one of the biggest market catalysts for the Greenback since it shows how the U.S. labor market is faring. The employment change figure indicates how many jobs were created or lost during the reporting period while the jobless rate measures the percentage of people with jobs relative to the labor force.

As you’ve probably learned in our School of Pipsology lesson on Fundamental Analysis, jobs growth influences overall economic performance as improving hiring trends spur stronger consumer confidence and spending. In contrast, deteriorating labor conditions weigh on sentiment and discourage people from spending.

What happened last time?

The previous NFP figure came in way below expectations, as the economy added only 126K jobs in March versus analysts’ estimates of a 246K gain, putting an end to the impressive five-month streak of stronger-than-expected jobs data. To make things worse, the February reading was revised to show a 264K increase, down from the initially reported 295K reading.

Forex market participants blame the March NFP report for setting off the U.S. dollar’s steady downtrend in the past month. After all, this prompted traders to doubt that the U.S. economic recovery can carry on and that the Fed can afford to hike interest rates in June.

What’s expected for the upcoming release?

For the month of April, the U.S. economy is expected to have added 227K jobs, which might be enough to bring the jobless rate down from 5.5% to 5.4%. However, leading labor indicators suggest that another disappointment might be seen.

The ADP non-farm employment change figure for the same month indicated a 169K increase, short of the estimated 199K gain, while the previous month’s reading was downgraded from 189K to 175K. On top of that, the jobs component of the April ISM manufacturing PMI slipped from 50 to 48.3 – its lowest level since September 2009.

How might the U.S. dollar react?

If the forex market is treated to another downside surprise for the April NFP release, the U.S. dollar could be in for an even sharper decline. After all, this could convince more market watchers that the Fed isn’t likely to tighten monetary policy anytime soon and might even decide to stand pat for the rest of the year. Recall that Fed head Yellen and her gang of policymakers specified in their latest FOMC statement that they would tighten monetary policy only if they see sustained improvements in the jobs market and if they are reasonably confident about inflation prospects.

On a more upbeat note, a stronger-than-expected reading could reassure forex traders that the recent slump in hiring was just temporary. Positive revisions to previous releases could also give the Greenback and extra boost, especially if these are enough to convince dollar bulls that a Fed rate hike is still a possibility.

What’s your game plan for the upcoming U.S. jobs release? Do you think we’ll see back-to-back disappointments or will the labor market show a strong rebound?

  • ForExchange

    Hi Forex Gump,

    one sentence that is true and got my special attention from your article:

    “Forex market participants blame the March NFP report for setting off the U.S. dollar’s steady downtrend in the past month.” – these participant are the majority who loses money and searches for excuses. The market goes where it wants and an NFP report will not change anything in the long-term.

    For me it is not the most important if the report has a good or a bad result. A lot more important to analyse what the markets do. In the current sentiment USD loses value which means to me I like to sell USD and for me it would be better to see a weak report as the USD loss would be quite volatile.

    Interesting result would be if the report brings a positive surprise. I say that would be interesting, because if the USD move would be sustained, it was then a sign of strong USD. On the other hand if a strong NFP report brings a strong USD movement which CANNOT be sustained, that would be a very strong indication of a longer-term weak USD.

    I would read your view on that,

    • Hey there, thanks for checking out my blog and sharing your thoughts as always. This could all boil down to how far above or below expectations the actual reading would be. It seems that traders are looking for a number “convincing enough” to push USD in a clearer and prolonged direction. Just my two pips though!

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