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Don’t look now but it’s NFP Friday, baby! Y’all ready for the granddaddy of economic reports?

Lemme start off this trading guide with some news from my spies on the ground.

Word on the streets is that market players are predicting that the unemployment rate will rise from 8.1% to 8.2%. Furthermore, they are also expecting payrolls to clock in at 115,000 for September, up from the 96,000 we saw in August.

However, I can’t ignore other employment reports hinting that we might receive a worse-than-expected result in tomorrow’s release. First, the employment index of the ISM non-manufacturing surveys dropped from 53.8 to 51.1. Take note that this is considered to be the strongest leading indicator of non-farm payrolls.

Second, while the ADP report did print better than expected at 162,000, it was a lot less than the downwardly revised 189,000 figure we saw for August. Remember that while the ADP report failed to predict the drastic drop in payrolls from July to August, it has been pretty accurate in determining the direction of the labor market.

But enough of the analysis, let’s get to the ways on how the NFP results can affect EUR/USD! Here are a couple of scenarios that could play out:

Scenario 1: The NFP prints weaker than expected

In this event, EUR/USD will most likely drop. After all, EUR/USD is usually directly correlated with the report.

That is, the pair drops on a weak reading and rises on better-than-expected numbers.

EUR/USD Reaction to July NFP

On the other hand, EUR/USD could rally on fundamentals. This is highly unlikely, but it could still happen especially if Super Mario says something significantly supportive of the euro in today’s ECB press conference.

Scenario 2: The NFP shoots above the investors’ expectations

Much like how the ISM manufacturing PMI surprised to the upside early this week, we can’t discount an upside surprise for the NFP. EUR/USD could rally on risk appetite as it shows that employment in the world’s largest economy isn’t as bad as many have predicted.

Then again, EUR/USD could trade on fundamentals and drop. A strong NFP would highlight the gap between upside surprises in U.S. reports and the recently released weak PMI reports from the eurozone.

EUR/USD Reaction to March NFP

Scenario 3: The NFP hits forecasts

If the NFP doesn’t diverge much from expectations, then EUR/USD could end up barely reacting to the news.

After all, the Fed just rolled out its QE3 program last month and will most likely wait for significant development (or deterioration) in the jobs numbers before they make any changes in their plans.

Given that EUR/USD can trade in a multitude of ways depending on the actual NFP results, it is important for you to gauge both what the markets are thinking before AND after the release. Make sure you tune in to the news or follow what’s happening on Twitter and other social media avenues.

Lastly, always make sure to keep your risk in check. The NFP report normally results in a ton of forex volatility, so if you’re not careful, you might get whipsawed. If you aren’t comfortable trading the news, your best bet is to just sit on the sidelines and learn through observation!