NFP: Fireworks Ahead of the 4th of July

It’s NFP Friday and we all know what that means – a catalyst for major moves!

If yesterday’s report was any indication, we may just be in for a downside surprise. Analysts normally look at the ADP as an indicator of things to come once the NFP version rolls around later in the week.

Just in case y’all forgot, last month’s report actually printed a pretty nice figure of 431,000. But as I pointed out using my old school detective skills, a huge chunk of the figure was mainly due to the census hiring. This time around, many expect employment to fall by 100,000!

YIKES!

Could this be true???!!!

I’ve done some research and sadly, there is a lot of data around that supports the forecast.

For one, the non-farm payrolls is expected to reflect the staff cuts the government needed to do as the decennial population count winds down. According to the Census Bureau, the total number of discharged temps who helped with the census in June was around 243,000.

Secondly, as I mentioned above, the ADP‘s version of the report suggests that negative forecast is well warranted, and even be too optimistic. It showed that only 13,000 jobs were added in June, compared to a revised 57,000 increase in May. The weak number tells us that the recovery in the job market is unable to catch up with the increase in the labor force.

Thirdly, initial jobless claims have been rising week after week. After hitting a low of 439,000, the number people who have claimed for unemployment insurance has risen as high as 472,000.

Still, with the highly distorted headline figure, traders will probably look to the section on private sector hiring to determine the state of the US job market. Now that risk aversion popped its head back in the markets, I’m inclined to think that anything worse than expected could lead to another safe-haven rally. A worse-than-expected reading will probably have damaging impact non-dollar currencies, particularly commodity-based, and send them way below major support levels.

It seems to me that traders are so risk averse lately that a single piece of bad news, like that downward revision in China’s leading index, will cause them to dump the higher-yielding currencies faster than MT4 Expert Advisors blows accounts!

What more if the NFP report disappoints?

It’s bad enough that analysts are projecting that the NFP figure could dip back in the red. An even larger decline in employment would confirm that the US labor market is still in a rut and this bleak outlook could force investors to flee to the safe-havens or to unload their riskier positions.

That’d mean a party for the Greenback, Yen, and Swissy!

Yes, that’s right, the Swissy now seems to be enjoying safe-haven status because it seems to be the safest bet among the European currencies.

In any case, I’d stay on my toes during the release of the NFP because there’s no telling what surprises could be hiding up its sleeve!

  • MikeyAndThePips

    Something I’ve never understood and perhaps you are just the person to explain it to me – if the payroll is bad, you say people will buy more USD and a couple of other currencies. Why do people buy USD when the US economic data is bad? Isn’t that counterintuitive? I’ve seen this in action, I just don’t get why.

  • MikeyAndThePips

    Something I’ve never understood and perhaps you are just the person to explain it to me – if the payroll is bad, you say people will buy more USD and a couple of other currencies. Why do people buy USD when the US economic data is bad? Isn’t that counterintuitive? I’ve seen this in action, I just don’t get why.

  • ForexGump

    This phenomenon is called “risk aversion.” Happy Pip did a good job in explaining this in AskPips.com… Here’s what she said: http://askpips.com/beginner/question/what-is-risk-aversion-and-whats-the-difference-between-that-and-risk-appetite

  • ForexGump

    This phenomenon is called “risk aversion.” Happy Pip did a good job in explaining this in AskPips.com… Here’s what she said: http://askpips.com/beginner/question/what-is-risk-aversion-and-whats-the-difference-between-that-and-risk-appetite