Mar 1, 2010

Forex Crunch How a Jobless Recovery Looks in Forex – Non-Farm Payrolls Preview

Forex Crunch How a Jobless Recovery Looks in Forex – Non-Farm Payrolls Preview

How a Jobless Recovery Looks in Forex – Non-Farm Payrolls Preview

Posted: 01 Mar 2010 05:15 AM PST


The US economy is growing, but without a gain in jobs. A loss of jobs will also be seen in the upcoming Non-Farm Payrolls release on March 5th. How will this impact forex trading? Here’s a preview.

On one hand, the American economy is growing nicely. I had doubts about the first release that showed an annual growth rate of 5.7%, but these doubts were erased with the second release, that was revised to 5.9%. But that’s only one side of the story.

On the other hand, this economic growth isn’t felt in the job market. There usually is a gap of about 6 months between the return to growth to the impact on jobs, as employers are cautious after an economic turn-down. The American job market is moving very slowly, still stabilizing, but not rising again.

Previous confusing figures

In previous months, expectations were high, but the outcome disappointed. Well, the fresh release of the Non-Farm Payrolls disappointed, but this headline figure was released with other positive figures that caused confusion. A quick reminder of the previous months:

In January, some economists expected a rise in jobs, but the consensus was for a small fall. A big drop in jobs was announced, but the revision of the previous month to job growth caused some confusion.

In February, the consensus of economists was already on the positive side. But yet again, the American job market lost 20K jobs. Also in this case, another figure came to the rescue: the unemployment rate, that fell surprisingly from 10% to 9.7%, quite a drop. The dollar eventually won.

Low expectations could turn into a surprise

This time, expectations are low. The recent surveys show an expected drop of 40K, and a rise in the unemployment rate from 9.7% to 9.8%. The explanations behind this pessimism is the harsh winter that the US experienced in February, hurting the economy.

In many cases, low expectations reduce the chance of a disappointment. In forex trading, the current trend is dollar bullish. If expectations are met, the dollar will continue this trend and continue rising gradually.

And if we finally see a positive surprise? Less jobs lost? Maybe finally seeing job gains? In such a case, the dollar will not only rise – it’ll jump. Only a very big loss in jobs and a return to a double-digit unemployment rate, will send the dollar lower.

Different Impact on Currencies

EUR/USD is usually the strongest vehicle of the dollar’s mood. Also the Pound feels it quite well, and it’s now especially vulnerable. A good jobs report will send GBP/USD way down. This is also due to internal British problems.

Also my favorites, the Aussie and the loonie, will lose ground on such dollar strength, but they won’t get a strong blow. Better jobs in the US mean more risk appetite, which these currencies enjoy. So, they’ll suffer from dollar strength, but this will be not from a risk aversive sell-off.

Anyway, the monthly release of the Non-Farm Payrolls will always cause volatility, and will shake the markets. I suggest trading with care. Here are my 5 notes for Nonfarm Payrolls trading, which are always relevant.

Want to see what other traders are doing in real accounts? Check out Currensee. It’s free.

Forex Daily Outlook – March 1st 2010

Posted: 28 Feb 2010 11:00 AM PST


The first day of March brings a busy calendar which isn’t typical for Mondays. Canadian GDP, European Unemployment Rate and American ISM Manufacturing PMI will stand out today.

As time goes by this week, trading will be more and more influenced by the tension towards the Non-Farm Payrolls. I suggest being careful with this event. OK, let’s start the review:

Australia’s Glenn Stevens might provide final hints to the upcoming rate decision in an early speech. Also in Australia, the AIG Manufacturing Index, Commodity Prices  and Current Account will be released, with the latter expected to show a bigger deficit.

Aussie traders have a busy week. For more, read the AUD/USD forecast.

In Europe, German Import Prices are predicted to rise by 0.8% and the Final Manufacturing PMI is expected to be confirmed at 54.1 points.

The more important release in Europe is the Unemployment Rate, which is predicted to tick up from 10 to 10.1%, showing the weakness of the Euro-zone.

For more on the Euro, check out the EUR/USD forecast and Casey Stubbs’ latest analysis.

British Manufacturing PMI always rocks the Pound. After rising up to 56.7 points, the highest score in a long time, this indicator is expected to tick down to 56.5.

Also in Britain, Net Lending to Individuals is expected to drop from 1.2 billion to 0.7 billion, showing less activity. For more on the British Pound, check out the GBP/USD forecast.

In Canada, monthly GDP is expected to rise by 0.4%, exactly as the previous quarter. Note that this release completes Q4 of 2009 and should be interesting to watch.

Also in Canada, RMPI (Raw Materials Price Index), is expected to rise by 1.9%. For more on USD/CAD, read the Canadian dollar forecast.

In the US, Core PCE Price Index is expected to rise by 0.1% while Personal Spending will probably rise by 0.4%. Personal Income is expected to rise by 0.5%.

The more important release is the ISM Manufacturing PMI – this figure jumped to 58.4 points, and is now expected to soften to 57.9, which is also great. A better result will boost the dollar.

Japan closes the day with Household Spending, which is expected to show a year over year rise of 2.6%. The Japanese Unemployment Rate will probably remain unchanged at 5.1%.

That’s it for today. Happy forex trading!

Want to see what other traders are doing in real accounts? Check out Currensee. It’s free.
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