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Just in case you’ve forgotten, let me remind you that the US non-farm payrolls report is due tomorrow! I know it’s hard to keep shifting our attention from one issue to another, especially since euro zone’s debt problems are hogging the spotlight.

Still, the US non-farm payrolls data isn’t just any economic report. It is THE mother lode of all economic data and traders do to pay attention to it. With that said, prepare to see some forex fireworks come Friday!

To start off, let’s examine how the dollar reacted to last month’s NFP, when printed its first positive figure in more than two years. Although failing to meet expectations, the positive result helped the dollar rally across the board. With the upcoming NFP report predicted to show that another 197,000 jobs were created, will we see the same price action?

Before going into that, we’d better check whether data supports the forecast.
Earlier this week, the ADP employment report posted that 32,000 new jobs were created by the private sector last March, which was higher than the consensus figure of 30,000. What’s more is that after initially posting job losses of 23,000 in February, the ADP revised up the figure to show that 19,000 jobs were actually ADDED. For those of you who are bad in math, that’s an upward revision of 42,000! Holy smokes Batman!

Personal spending and income figures also rose by 0.6% and 0.3% in March. Could this be attributed to improvements in the labor market? This might just be a sign that consumers are becoming optimistic over the economy! Besides, I don’t know about you but I wouldn’t be dropping any of my new $100 dollar bills (which are pretty slick) if I wasn’t confident about my job security.

Take caution, however, because some are suggesting that majority of the jobs added were primarily the result of census hiring. This means that the figure could be artificially high, giving me reason to believe that what we might see isn’t a true reflection of what’s really happening in the labor market.

Reactions to past NFP reports have varied, oftentimes depending on how the actual results fared. Volatility usually goes wild, with the EURUSD pair spiking up and down right after the release. But after the dust settles and traders start calming down, the price action typically cools off as well and pairs go back to where they were prior to the report.

Before you start thinking that we could see the same old price action later on, note that the current market setting is extra special this time around. Risk aversion has hit an all-time high lately as debt contagion fears dominate the airwaves. With everything that’s going wrong – and with room to get worse – in the euro zone, more and more traders have been flocking to the safe-havens.

Worse than expected NFP results could add fuel to the risk aversion fire, adding labor market woes to the long list of problems that investors are fretting over. But if the actual figure meets or beats the consensus, I doubt that it’ll be enough to spur risk-taking like it used to. It could even give traders more reasons to buy up the US dollar now that employment is picking up. Either way, it might be a win-win situation for the mighty greenback!