Trading the Non-Farm Payrolls

It’s time for the Non-Farm Payrolls report, folks! Are we in for a fun, fun, fun Friday? Or will we see the currency bears attack faster than Rebecca Black could say “kickin’ in the backseat?”

For y’all Curious Georges out there, the U.S. non-farm payroll report, or simply NFP in geek speak, is a report released by the Bureau of Labor Statistics every first Friday of the month. The data estimates the total number of paid workers in non-farm business establishments and government agencies in the U.S., and also includes the unemployment rate and even the average hourly earnings.

Since employment is a leading indicator of consumer spending and consumer confidence, the NFP figures are closely watched by markets and usually cause crazy volatility in the charts.

On Friday at 12:30 pm GMT my forex homies are expecting an additional 190,000 jobs in March, about the same growth as the 192,000 increase in February. This is probably because the ADP employment change report released yesterday already revealed its estimate of an additional 201,000 jobs in March, which is also almost the same as February’s 208,000 figure.

If you’ve been too busy playing Angry Birds for the past couple of months, then you should know that the ADP report is also closely monitored as it gives clues on the NFP report. As good as these figures are though; you should still keep your eyes peeled for any surprises.

Aside from the report printing below expectations for the past four releases, the U.S. unemployment rate has already fallen by 0.9% in just three months and might finally retrace in March.

Now let me give you a recap of how EUR/USD and GBP/USD reacted to the last NFP report.

EUR/USD

EUR/USD 15-minute chart

Last February the U.S. unemployment rate declined to 8.9% instead of rising to 9.1%, while the non-farm payrolls beat consensus by 1,000. After the report, EUR/USD popped up 50 pips. Unfortunately, the upsurge proved to be unsustainable as the pair fell back to where it was prior the report.

GBP/USD

GBP/USD 15-minute chart

Cable more or less told the same story. GBP/USD fell around 60 pips at the wake of the release, went back up, and once again tumbled to a support at 1.6240.

The Verdict

I think that we’ll see more direction than see-saw action on the pair when the March figures are announced tomorrow. For one, currencies were already struggling due to bad economic data when the report was released last February. In addition, risk aversion was very high because of the ruckus in the Middle East.

In contrast to the market environment last month, sentiment this week has been pretty much on the bright side due to rate hike speculations and optimistic economic reports.

If the NFP comes in better than forecast, then I suspect it will be risk appetite that takes over, and not fundamentals. This means we might see both EUR/USD and GBP/USD gain. A weaker figure, on the other hand, could temper risk appetite, and cause the pairs to drop.

With the expiration of the Fed’s QE2 only a couple of months away, traders will be on their toes for tomorrow’s release. The data will provide a good feel of how strong the U.S. labor market is and gauge whether or not the economy can show swagger even without stimulus. Make sure you don’t miss it!

  • jon168

    sir, newbie trader here. just wanted to ask the reason why eur/usd and gbp/usd would go up if nfp numbers are good and better than expected?
    thanks.

  • jon168

    sir, newbie trader here. just wanted to ask the reason why eur/usd and gbp/usd would go up if nfp numbers are good and better than expected?
    thanks.