Every first Friday of every month the Bureau of Labor Statistics or BLS releases the monthly non-farm payroll report in the US. Many traders view this economic report as the most important economic report of the month. Fundamental traders often adjust their forex positions based one this economic report as it could influence trading for several sessions.
Since the US
Federal Reserve has started to print money in order, as they claim, to support the US
economy the non-farm payroll or
NFP report has took on an even greater role. Prior to
quantitative easing or QE as it is often abbreviated a disappointment in the figures as well as an increase in the
unemployment report often started severe sell-offs while the
US Dollar was sold off heavily.
After
QE many equity traders actually cheer for a worse than expected figure which is used as an excuse to buy equities while the US Dollar will be sold off. The sixteen day partial
government shutdown in the US which lasted between October 1st and October 16th is expected to have a negative impact on the economy, but it is yet unclear how it will impact the
labor market.
Here is what is expected from the NFP report which will be released this Friday:- Headline figure gain of 125,000 jobs created
- Unemployment rate to increase by 0.1% to 7.3%
Should the NFP report come in as expected it will likely be considered positive for
equity markets and bearish for the US Dollar as it will ensure that the US Fed will maintain its course on QE without
tapering it. The more money the Federal Reserve prints the more it devalues the USD.
What should forex traders expect?The following three scenarios could be seen this Friday:- NFP report comes in roughly as expected – This should lead to a sell-off in the USD which
means all currency pairs with the USD as the quote currency, such as the EURUSD, should rally while currency pairs with the USD as the base currency, such as USDCHF, should sell-off. - NFP report comes in better than expected – This should lead to a rally in the USD as forex traders will speculate that the Fed will at least discuss tapering QE and reducing it at an earlier stage than currently expected.
- NFP report comes in worse than expected – This should lead to a broad based sell-off and the USD should drop sharply lower as this would point to a more widespread weakness in the US economy.
Traders should prepare their
forex portfolio for a rather volatile session on Friday as the NFP report is set-up for a negative surprise. Traders should examine their open trades associated with the USD over the next two trading sessions and trade cautiously into the release of the NFP report on Friday.
Wildcard:Forex traders should watch out for revisions to the previous two month and add them to the headline number which will be reported on Friday.
