Making Money on the Non-Farm Payrolls

On Friday, at 12:30 pm GMT, the U.S. will publish its monthly employment report. In the last release, the employment report disappointed as it showed that the labor market added ZERO new jobs and joblessness remained at 9.1%. In addition, average hourly earnings fell 0.1% instead of rising 0.2% as expected.

For the upcoming report, however, the market is expecting a bit of good news. The consensus is that 51,000 jobs were created and average hourly earnings rose by 0.2%. Unfortunately, the unemployment rate is still expected to have remained at 9.1%

But despite the positive forecast, I highly doubt that will be enough to lift the mood of investors. As I have mentioned repeatedly in my past blog posts, the labor market needs to grow, AT THE VERY LEAST, by 200,000 workers monthly to reduce the unemployment rate by 1% each year.

Without a doubt, there is weakness in the U.S. economy. There is a lot of evidence, but let me point out a few key data points.

The most recent quarterly U.S. GDP report, which you could say is the most comprehensive measure of the economy’s performance, only showed a 1.3% growth, which was the weakest in two years. Consumer spending also shared the same sour tone as the retail sales report for September reported no growth at all.

Even the Federal Reserve agrees. On Wednesday, Big Ben Bernanke testified before Congress and said that the central bank is willing to take “further action” since jobless claims and other leading economic indicators point to more sluggish job growth in the future. The market took Bernanke’s speech as a hint for a third round of quantitative easing.

The situation is indeed glum, but as traders, it is our job to be prepared and to make the best out of any situation. Let’s turn to the charts and see how we can make pips off the release of the report!

Chances are that the report will miss consensus. After all, the report has printed either worse or better-than-expected in 9 out of the past 10 releases.

15-minute Chart of EUR/USD NFP in August

On August 5, we saw NFP figures come in at 117,000, slightly higher than the projected 89,000. EUR/USD initially dropped, but then rallied for the rest of the day, as risk appetite seemed to dominate the session. By the end of the day, EUR/USD finished 150 pips higher than where the initial 15- inute candle closed.

15-minute Chart of EUR/USD NFP in September

This past September 2, we saw those poor NFP figures, as it printed a big fat zero. While EUR/USD shot up at first, it soon dropped roughly 70 pips, as risk aversion took over the markets.

There are three things I’d like to point out based on the two charts above:

a) After the first 15-minute candle closed, price immediately reversed and traded in the opposite direction, heading for a new high or low for the day.

b) It seems that risk sentiment played a key factor during the last two releases. When the report came in better-than-expected, we saw some risk taking take place and EUR/USD rallied. The opposite happened when the report was much worse-than-expected.

c) There were gaps over the weekend, in the direction of the move from Friday. It seems that risk sentiment carried over, causing the weekend gaps.

Based on the past two releases, one way to play the NFP report is to wait for first 15-minute candle to close, then immediately put in an order in the opposite direction. You can set a relatively tight stop of about 50 pips, and just hold until the end of the New York session.

Moreover, if you think that risk sentiment is strong and feel gutsy enough, you can hold your position open over the weekend and see if a gap occurs, giving you some additional pips!

Just be aware that NOTHING is certain in the markets! The NFP report has proven to be a major catalyst in the markets but there’s no telling how exactly the markets will react. That’s why it’s important to practice good risk management skills.

Lastly, if you feel that trading the NFP is too wild for your tastes, don’t be ashamed to sit on the sidelines. Remember, having no position is also having a position!


  • Hush

    Waited to see how the NFP would be traded today and boy oh boy,turned out exactly as you put it.Now am thinking since the USD/CAD daily chart art u pointed out is indicating bullish signals for the dollar,wouldn’t it be good idea to ask?

  • Rokasvivas

    Thanks.

  • Ehikacross

    Thank you very much

  • Rokasvivas

    Hello. That number of 200,000 new jobs must be in a single report? not cumulative?

  • Cpwere

    hhmm interesting things turned out exactly as described in this article.

    eye opener.