Posted: 01 Aug 2010 06:00 PM PDT

It’s the first week in the month, and Friday brings the king of forex – Non-Farm Payrolls. We’re expecting to see another significant drop in jobs – still the after-effect of the government census, but also a reflection of the slowdown. Here’s a preview for this major release, including things to watch out for, and expected markets reactions.

This is the most volatile event for currency traders, especially in EUR/USD in USD/JPY, which are most vulnerable to American releases. I recommend reading my 5 notes for Non-Farm Payrolls trading, especially for new traders. Let’s see what’s expecting us now:

Importance of Private Sector Numbers

In May, Non-Farm Payrolls jumped by 433K. This result, the highest gain in a long time, was expected. In May, the US government held the decennial census, hiring hundreds of thousands of people. This hiring began many months beforehand and reached the climax in May. So, even a bigger gain was expected. The big disappointment came from the private sector, that hired a small amount of people – this is the real problem.

In June, there were expectations for a “hangover”, due to the government’s release of all the temporary workers. And this drop, of 125K, was worse than expected, also due to weak hiring by the private sector.

The census effect is slowly fading away, but the change in jobs in the private sector will still play a big role, alongside the overall number. Expectations for the headline number are for a loss of 75K jobs. A loss of more than 100K will be a disappointment, while a loss of under 50K or even a gain in jobs will be a good surprise. But it’s important to note the change in the private sector – a gain in jobs will be good, and a loss will be bad.

With the private sector change being important, the independent ADP Non-Farm Payrolls, released on Wednesday, will receive special attention. This isn’t always the best indicator for the headline number of the NFP, but as it’s a report for the private sector, it’s importance is high. A gain of 36K jobs is predicted here.

Unemployment Rate

Regarding the unemployment rate, its role became more subtle. Changes in the unemployment rate don’t necessarily reflect the economy, but rather statistical changes. In many cases, we’ve seen confusing figures – a gain in jobs with a rise in the unemployment rate, and the opposite – a drop in jobs together with a drop in the unemployment rate.

The unemployment rate will play a role only if it rises to 10% – the double digit psychological level has a strong effect on currency markets. In the other direction, only a drop to 9.2% or lower will be a positive sign. The rate likely to be something in the middle, ticking up from 9.5% to 9.6%, leaving the scene for the Non-Farm Payrolls.

A related figure is the weekly unemployment claims. Here, we’ve seen rock steady releases in the past few months, between 440K to 480K. If this Thursday’s number is out of this range, this could affect the preparations for the NFP, but this is highly unlikely. In the sole occasion when the number stood on 429K, it was quickly dismissed as a miscalculation.

Market Reaction

In the past month, we’re back to “normal” market reaction – no risk factor. This means that the dollar falls on weak US figures and rises on good ones. This applies to “risky” currencies such as the Euro, Pound, Aussie, loonie and kiwi, as well as the so called “safe haven” currencies such as the Swissy and the yen.

Note that the initial reaction, and the strong moves that occur before the release, don’t necessarily reflect the direction that the market will take later, towards the close of the week, and into the new week. I’ll mention again – the private sector number in the Non-Farm Payrolls still plays a big role – a gain or a loss here can determine a gain or a loss for the greenback.

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Forex Daily Outlook – August 2 2010

Posted: 01 Aug 2010 02:00 PM PDT

We start the week with a variety of news, starting in the US with Chairman Ben Bernanke & President Timothy Geithner speeches, Manufacturing updated in Europe and UK and more interesting updates. Let’s see what awaits us today.

In the US, Federal Reserve Chairman Ben Bernanke deliver a speech titled “Challenges for the Economy and State Governments” at the Southern Legislative Conference 64th Annual Meeting, in Charleston. Audience questions expected and affect the short term interest rates.

More in the US, Federal Reserve Bank of New York President Timothy Geithner deliver a speech titled “Next Steps for Financial Reform” at the Stern School of Business, in New York; Federal Reserve FOMC members vote on where to set the nation’s key interest rates and their public engagements are often used to drop subtle clues regarding future monetary policy.

Finally in the US, The Institute for Supply Management (ISM) Manufacturing Purchasing Managers’ Index (PMI), the sector leading the US economic recovery is expected to expand for another month, but this time at a slower pace to 54.3 in July from 56.2 in June.

In Europe, Final Manufacturing Purchasing Managers’ Index (PMI), stabilized on 56.5, it is the level of a diffusion index based on surveyed purchasing managers in the manufacturing industry. a survey of about 600 purchasing managers which asks respondents to rate the relative level of business conditions and hold perhaps the most current and relevant insight into the company’s view of the economy;

In Great Britain, Manufacturing PMI (Purchasing Managers’ Index),this could be another economic report, following the better-than-expected Q2 GDP, showing positive momentum in the U.K. economy, with the U.K. manufacturing output forecasted to increase by 0.5% from 0.3%, and industrial production growing by 0.3% from 0.7% in the previous month.

More in Great Britain, Halifax HPI the change in the price of homes increased by Halifax Bank of Scotland (HBOS) increased by 2% and spur industry activity/

Read more about the Pound in the GBP/USD forecast.

In Switzerland, Retail Sales, the change in the total value of inflation-adjusted sales at the retail level, excluding automobiles and gas stations, increased by 3% and it’s the primary gauge of consumer spending, which accounts for the majority of overall economic activity.

Later In Switzerland, Schweizerischer Verband fur Materialwirtschaft und Einkauf (SVME), Purchasing Managers’ Index (PMI), a survey of about 200 purchasing managers which asks respondents to rate the relative level of business conditions. It’s a leading indicator that hold perhaps the most current and relevant insight into the company’s view of the economy.

In Australia, Index of Commodity Prices, the change in the selling price of exported commodities, a leading monthly report of the nation’s trade balance with other countries because rising commodity prices boost export income.

For more on the Aussie, read the AUD/USD forecast.

In New Zealand, Labor Cost Index, the change in the price businesses pay for labor, excluding overtime had increased by 1%, leading quarterly report and an indicator of consumer inflation.

In Japan, Average Cash Earnings the change in the total value of employment income collected by workers, increased by 6%. The monthly report Income is correlated with spending – the more disposable income consumers have, the more likely they are to increase spending.

That’s it for today. Happy forex trading!

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Binary Options Setups – August 2-6

Posted: 01 Aug 2010 07:30 AM PDT

This week consists of quite a few market moving events that could provide opportunities for binary options trading. Here are 10 market moving events with potential market reactions and binary options setups.

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I’ve selected the events and the setups based on study already done for the forex weekly outlooks, and the potential reactions to surprises. Some events collide with each other and could offset each other. These events weren’t selected.

Quick explanation:

CALL options – if the price closes above the price you purchased at expiry, you earn 75%. If it closes below, you’re left with 10%.
PUT options – if the price closes below the price you purchased at expiry, you earn 75%. If it closes above, you’re left with 10%.

OK, let’s review the events:

US ISM Manufacturing PMI: Monday 14:00 GMT. Market expectations currently stand on 54.3. 56.5 or higher – PUT option on EUR/USD. 52 or lower, CALL option on EUR/USD.
Australian rate decision: Tuesday, 4:30 GMT. Market expects unchanged rate at 4.50%, a rise to 4.75% – CALL option on AUD/USD. A drop to 4.25% – PUT option on AUD/USD.
British Services PMI: Wednesday 8:30 GMT. Market expects 54.6, a score of 57 or higher – CALL option on GBP/USD, 51 or lower – PUT option on GBP/USD.
US ADP Non-Farm Employment Change: Wednesday, 12:15 GMT. Market expects +36K. 60K or higher, PUT option on EUR/USD, negative outcome, CALL option on EUR/USD.
US ISM Non-Manufacturing PMI: Wednesday, 14:00 GMT. Market expects 53.3 points. A score of 55 or higher – PUT option on EUR/USD. Below 50 – CALL option on EUR/USD.
New Zealand Unemployment Rate: Wednesday, 22:45 GMT. Market expects a rise to 6.2%. Below 6% – CALL option on NZD/USD. Above 6.8% – PUT option on NZD/USD.
British rate decision: Thursday, 11:00 GMT. Market expects an unchanged rate at 0.5%. Any raise – CALL option on GBP/USD.
US Unemployment Claims: Thursday 12:30 GMT. Market expects 456K. 480K or higher – CALL option on EUR/USD. Below 430K – PUT option on EUR/USD.
Canadian Employment Change: Friday, 11:00 GMT. Market expects 10.3K. Above 30K – PUT option on USD/CAD. Negative number – CALL option on USD/CAD.
US Non-Farm Payrolls: Friday, 12:30 GMT. Market expects a loss of 75K. A positive outcome – PUT option on EUR/USD. A loss of over 100K, CALL option on EUR/USD.

These expected market reactions and setups are general market commentary. This is by no means investment advice.

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