Your Guide to Tomorrow’s NFP Report

Good news everybody! Analysts are expecting to see the number of people who joined the labor market quadruple from January to February. The non-farm payrolls report for January printed a 36,000 net increase but for February, the forecast is up to a whopping 176,000!

Based on the ADP Employment Survey for February, which many consider as their very own crystal ball in predicting the NFP, it seems like we’re in for a treat tomorrow! Not only did it beat the forecast of 178,000 when it printed at 217,000, but the reading for January was also upwardly revised to 189,000 from 187,000!

From October 2010 up until January of this year, the NFP report has shown growth in the U.S. labor market. For those of you who played hooky in kindergarten, that translates to four consecutive months of jobs added to the economy. Is this a new trend we’re seeing in the labor market?

Looking at the past three NFP releases on our snazzy economic calendar, you’ll see that although all three months saw net increases in employment, job growth struck out when it came to meeting expectations. In other words, not once was it able to come close to matching forecasts!

Whip out your charts and check out what happened after November’s numbers were published in December. When the NFP fell to less than a third of the expected figure, EUR/USD’s immediate reaction was a sharp selloff. However, within an hour, the pair was able to fully recover and it ended the New York session with a solid 350-pip rally. The following week, it continued to trend even higher.

When December’s disappointing stats were released in January, the pair traded choppily at first. But eventually, over the course of a week, it was able to tap a new high above 1.3400 after climbing over 400 pips.

Then in February, when the NFP figure for January showed only a FOURTH of the consensus forecast, things started to get interesting. Horrible NFP results were accompanied by a sharp drop in the unemployment rate. The mixed feedback had the markets confused and was dollar positive at first. But within a week, EUR/USD reversed directions and staged another powerful rally.

So what does this tell us? If you ask me, it means that the markets are ignoring the improvements in the U.S. economy. Over the past few weeks, the markets have been drooling over the prospect of interest rate hikes by central banks around the world. Unfortunately, this doesn’t include the Fed, which has made the dollar as bad as this year’s Oscars.

Thus, whenever good data comes out, we normally see risk appetite pick up, which leaves the dollar helpless against other more attractive currencies (in terms of yield that is).

Just take a look at yesterday’s ADP report. It came in to beat expectations, but what happened? Risk appetite took over, which helped higher yielding currencies like the euro advance up the charts.

Prior to this, we saw the markets react positively to good news, while becoming risk averse when bad news (like turmoil in Libya) hit the airwaves.

With that said, keep an eye out at 9:00 pm GMT when the NFP report is released. It could be the catalyst for a major move on EUR/USD!

EUR/USD Chart

If we see a better-than-expected figure, it might just spark risk appetite and allow EUR/USD to make a clean break above the recent resistance at 1.3830

On the other hand, if the report fails to hit expectations for the fourth month in a row, it might convince risk averse traders to take some of their profits over the past couple of weeks and send the pair lower.

In any case, be ready for some fireworks this Friday! If you don’t wanna get caught up in the wild moves, there’s no shame in sitting out!

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