NFP, How Do I Trade Thee?

Will the upcoming non-farm payrolls (NFP) report print another disappointing result? For the past couple of months, the NFP figure slid back into negative territory as the government census hiring ended. In July, net hiring sank by 131,000 while the June report was revised to show that 221,000 jobs were shed during the month, worse than the initially reported 125,000 figure.

No wonder this sparked some hush-hush about the need for further easing from the Fed. It seems that policymakers aren’t completely convinced that the US economy is en route to recovery. Because of that, they’re leaning towards implementing more stimulus policies in case the economic situation worsens. And this August NFP report could just prod them in that direction, especially if it comes in much weaker than expected.

So what do market geeks think about this Friday’s NFP report? Word around the forex grapevine is that analysts see a fall of 100,000 in payrolls last August, with hiring in private sector weakening to a mere 42,000 gain from its 71,000 rise in July. In fact, some also say that unemployment rate could climb from 9.5% to 9.6%! Sheesh, where did all the love go?

The optimism fell with yesterday’s ADP report, apparently. You see, the ADP is like the twin bro of the NFP, except that the latter also considers the employment in the public sector. Uh-oh, this hints that we just might see job losses higher than the ADP’s 10,000 figure!

If this happens, traders might be up for another round of dollar-selling. Strong economic data released earlier that day might have muted the negative impact of the ADP report, but we might see a bigger wave of volatility with this red flag! Anything pointing in the direction of the big R-word in the US could convince traders to dump the Greenback.

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Sounds exciting, huh? But if extra volatility ain’t your cup of tea, you might wanna stay on the sidelines during the release of the NFP report tomorrow at 12:30 pm GMT. Better yet, watch out for sudden moves here and there minutes before the actual release. Now that summer’s coming to a close, I’m guessing some fine, fresh, fierce traders back from the Golden Coast are excited to play the NFP.

If you’re brave enough to join this bunch and trade the NFP, bear in mind that the initial reaction to the report is ALMOST ALWAYS reversed. It might be better to simply watch the knee-jerk reaction after the release then fade that move. After the dust settles and the trading frenzy dies down, the markets USUALLY make a sustained move in the opposite direction so make sure you don’t miss the boat. Stay on your toes at all times and good luck!

  • pipkarma

    Hello, I am a newbie here, so pardon my question. I am a bit confused after reading the post. Shouldn’t a bad NFP report send the stock market to a selling frenzy thus USD to go up? Isn’t there a negative correlation between the stock market and the USD?

    I am guessing that if the data is bad, then people will buy USD, sell stocks. If the data is good, USD should fall as people will pile up on more equities? Isn’t this the case or am I missing something?

  • ForexGump

    Hi pipkarma, thanks for checking out my entry! You’re right, bad economic data from the US usually causes the safe-haven dollar to go up. However, it seems that the market environment is a bit unusual lately. Traders still seem to be biased against the US dollar since the Fed just said they’d implement more easing if the economy needs it. A bad NFP report would confirm that the US economy is still very weak and this could prompt the Fed to inject more stimulus, which could be bearish for the US dollar.

    It’s really tough to tell. Risk aversion is still dominating the markets but traders seem hesitant to buy up the US dollar and would rather park their money in other safe-havens or better-performing currencies. Hope this clarifies things!

  • pipkarma

    Hello, I am a newbie here, so pardon my question. I am a bit confused after reading the post. Shouldn’t a bad NFP report send the stock market to a selling frenzy thus USD to go up? Isn’t there a negative correlation between the stock market and the USD?

    I am guessing that if the data is bad, then people will buy USD, sell stocks. If the data is good, USD should fall as people will pile up on more equities? Isn’t this the case or am I missing something?

  • pipkarma

    Thanks for clarifying. Eagerly looking forward to tomorrow.

  • ForexGump

    Hi pipkarma, thanks for checking out my entry! You’re right, bad economic data from the US usually causes the safe-haven dollar to go up. However, it seems that the market environment is a bit unusual lately. Traders still seem to be biased against the US dollar since the Fed just said they’d implement more easing if the economy needs it. A bad NFP report would confirm that the US economy is still very weak and this could prompt the Fed to inject more stimulus, which could be bearish for the US dollar.

    It’s really tough to tell. Risk aversion is still dominating the markets but traders seem hesitant to buy up the US dollar and would rather park their money in other safe-havens or better-performing currencies. Hope this clarifies things!

  • pipkarma

    Thanks for clarifying. Eagerly looking forward to tomorrow.