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Previous vs. Consensus vs. Actual

In the last release of the non-farm employment change, the market was treated to nice surprise. The non-farm payrolls showed that 244,000 net jobs were added, significantly higher than the 185,000 increase initially expected. In addition to beating forecast, the number was also an improvement from the prior month’s 221,000 gain.

This time around, the market doesn’t seem so optimistic, as the non-farm employment change is expected to show that employers hired fewer workers due to the huge jump in fuel costs. The market anticipates that only 194,000 jobs were added in May.

Non-farm payrolls trend

Looking at the overall trend in the non-farm payrolls, it seems that hiring is improving. It has risen consistently from December’s weak 36,000 figure to as high as 244,000 last month. While it did fall slightly during February, there’s no denying that the jobs being created have been rising.

Impact on EUR/USD of the last releases

April 1, 2011

Effect on EUR/USD of April NFP Report

For the better part of the Asian and European trading sessions, EUR/USD was pretty much in a standstill, as traders were probably waiting for the NFP release. When the report came out higher than forecast, EUR/USD busted out of consolidation and dropped 80 pips. However, the pair soon reversed and rallied 150 pips higher during the European close.

May 6, 2011

Effect on EUR/USD of May NFP Report

In the May release, the NFP report once again came in better than expected, coming in at 244,000 and way above the 185,000 forecast. This time around, we saw a spike lower of about 40 pips before it jumped up 100 pips. However, risk aversion soon kicked in and sent EUR/USD diving lower by 200 pips!

So how do we trade the NFP?

As expected, the NFP caused quite a stir in the forex market. Looking at the charts though, you’ll notice that the big move came a couple hours AFTER the release of the report.

In addition, the move turned out to be the opposite of the immediate reaction to the report. This hints to me that it might be best to wait first before establishing a position.

Another thing to keep in mind is what was the dominating market sentiment that week? Was it risk aversion or risk appetite?

In the days leading up to the April release, EUR/USD traded slightly higher, indicating that risk sentiment was probably keeping the pair afloat. Then on the Thursday before the May report, EUR/USD actually dropped 300 pips on sovereign debt fears, bringing risk aversion back into play.

So far this week, EUR/USD has been climbing up the charts. If tomorrow’s NFP report comes out better than expected, it may just help the pair end the week on a high note.