Trading the News: US Change in Non-Farm Payrolls
What’s Expected
Time of release: 06/06/2008 12:30 GMT, 08:30 EST
Primary Pair Impact : EURUSD
Expected: -60K
Previous: -20K
How To Trade This Event Risk
Friday’s Non-farm payroll report is expected to show job losses for a fifth month as economists are predicting the economy gave back another 60,00 jobs in the month of May. The estimate corresponds with the recent Challenger Job cut report which showed layoffs totaling 103,522 during the month. The financial sector lost another 16,000 jobs as it continues to feel the effects of the subprime crisis. Additionally, the economy must also now contend with the impact of record oil prices that have weighed on the airline and automobile sectors which cut over 30,000 jobs in May. The latest ISM Non-manufacturing report which measures conditions in the service sector show its employment component declining to 48.7 from 50.8. A decline in jobs in the service sector may set up NFP’s for a larger than expected decline, as the sector was the sole reason for lat month’s better than expected results by generating 90,000 jobs. Although, the manufacturing sector has steadily improved as a weak dollar makes U.S. exports more attractive, the remained at a contraction level in May with a reading of 45.5. The only sign that the job report may be better than expected is the recent 40,000 increase in private sector jobs reported by ADP.
Bullish dollar momentum was recently generated by hawkish comments from Chairman Bernanke when he expressed concern over the greenback’s weakness and its impact on inflation. The Fed chairman eliminated any chances of a another rate cut by the MPC and increased the odds that a hike may be possible before the year ends. Considering, the pair’s has stalled at significant support at 1.5389, the 38.2% Fibo level of 1.4364-1.6018 and may require a significantly better than expected employment report to make a clear break lower. Therefore, for a bullish dollar trade(short EURUSD) we would require a job loss of less than 20,000. With a strong fundamental mix, we will look for red, five minute candle close for a short on two lots of EURUSD. Our initial stop will be set above the nearby swing high (or reasonable distance) and the first target will equal this risk. The second objective will be discretionary; and to protect against losses, we will move the second stop to break even when the first target is hit.
On the other hand, another month of over job losses may be enough for dollar bears to grab momentum back especially if the total surpasses estimates . We will look for a inline or greater contraction in employment for a EURUSD long and will follow the same strategy as a short, just in reverse.