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Can’t get enough of forex volatility this week?

Lucky for you, Uncle Sam is printing the closely watched non-farm payrolls (NFP) report on Friday at 1:30 pm GMT along with labor market indicators such as the unemployment rate and wages activity.

Planning on trading the event? Here are the important points you need to remember:

What happened last time?

  • July non-farm payrolls at 164K as expected
  • July unemployment rate steady at 3.7% as expected
  • July average hourly earnings up 0.3% vs. 0.2% seen, 0.3% previous
  • July labor force participation rate higher from 62.9% to 63.0%
  • June NFP reading downgraded from 224K to 193K

The U.S. economy added a net of 164,000 jobs in July, lower than the downwardly revised 194,000 jobs seen in June and in line with markets had expected.

The unemployment rate also remained at 3.7%, while average hourly earnings ticked 0.3% higher when analysts saw it at 0.2%.

While the report didn’t raise red flags for the economy or pointed to the urgent need for another Fed rate cut, it also wasn’t spectacular enough for a lot of traders.

For one thing, May AND June’s numbers were revised down and the number of hours worked had declined.

USD 15-Minute Forex Charts
USD 15-Minute Forex Charts

The not-so-awesome numbers got mixed in with a worrying trade balance report and resulted in the dollar losing its post-release gains to end the day lower across the board.

What are traders expecting this time?

  • August non-farm payrolls to come in at 158K
  • August unemployment rate to hold steady at 3.7%
  • August average hourly earnings to maintain its 0.3% increase

Looks like market players don’t expect a lot of changes from July’s numbers.

The headline NFP is expected to come in at 158,000 while the jobless rate and average hourly earnings are seen maintaining last month’s rates.

Trading tips and tricks

Do analysts have reason to expect a slightly lower NFP reading? Let’s look at the leading indicators:

Services PMIs from both Markit and ISM as well as the ADP reports are due in a few hours, so we only have Markit and ISM’s manufacturing numbers for now.

Recall that ISM’s manufacturing PMI dropped to contraction territory this week thanks to a bunch of indicators slowing the overall report down.

Well, the employment component didn’t look much better. It fell 4.3% from July to August, its first contraction since September 2016!

Markit’s final manufacturing PMI echoed ISM’s weak reading, though its employment component was “broadly unchanged” as businesses used spare capacity to fulfill order backlogs.

What about past releases? Can they give clues to this week’s numbers?

Headline NFP Numbers in August
Headline NFP Numbers in August

As you can see, analysts tend to expect a lot of August’s numbers than what the economy can provide. Not only that but August’s numbers also slightly favor weaker releases compared to their July counterparts.

Unless today’s services PMIs and ADP reports tell us otherwise, it looks like there’s reason to expect lower headline NFP numbers this week. Question is, just how weak will these numbers be?

Take note that Fed Chairman Powell has a speech scheduled after the NFP report. If he hints that U.S. labor market trends are worrying Fed members, then we could see rate cut speculations spike in the markets.

And then there are Trump’s tweets. If the Donald uses this week’s NFP event to put even more pressure on the Fed to cut its rates, then we could see the dollar slip further against its major counterparts.

Not feeling confident about trading the highly-awaited report? Just make sure that you bring your best risk management game!

You could also stay in the sidelines if you’d rather wait for more obvious trends to emerge before jumping in. There ain’t no shame in staying away from the game if that’s what your instincts are telling ya!