U.S. Non-Farm payrolls are expected to contract another 330K in November after falling 240K in the previous month, and may trigger a selloff in the dollar as labor conditions deteriorate further.
Trading the News: US Change in Non-Farm Payrolls
What’s Expected Time of release: 12/05/2008 13:30 GMT, 08:30 EST
Primary Pair Impact : EURUSD
Expected: -330K
Previous: -240K
Impact of the US employment report had on EURUSD through the past 3 months
October 2008 US Change In Non-Farm Payrolls
The U.S. economy lost 240K jobs in October following a loss of 284K in the previous month, which raised the unemployment rate to a 14 year high of 6.5% from 6.1% in September. Moreover, mounting job losses pushed the total number of unemployed workers to a 25 year high of 10.08M in October, and conditions may only get worse as demands from home and abroad falter. Deteriorating fundamentals have certainly stoked fears that the U.S. will ultimately face its most severe recession in 25 years. Despite the extraordinary efforts taken on by policymakers, fears of a protracted downturn has already raised bets that the Fed will continue to ease policy further over the coming months, and would lower the interest rate below 1.00% at the December 16th policy meeting.
September 2008 US Change In Non-Farm Payrolls
Employment opportunities in the U.S. weakened as the economy lost jobs for the ninth consecutive month in September. Non-Farm payrolls slipped 159K from August to record its biggest decline in five years as fading growth prospects pushed firms to cutback on employment. The ongoing downturn in the housing sector paired with the credit crunch has certainly taken a toll on the world’s largest economy, and conditions may only get worse as the U.S. heads into a recession. Moreover, fading demands from the global economy has also spurred increased concerns for growth, and the Fed could be forced to increase their efforts over the coming months in order to avoid a severe slowdown in the economy.
August 2008 US Change In Non-Farm Payrolls
U.S. payrolls declined for the eighth consecutive month, which led the unemployment rate to surge to a five year high of 6.1% from 5.7% in July. The economy lost 84K jobs during August, which was much greater than the 75K decline expected by economist. Fading employment demands suggests that the downturn in the economy may last longer than the FOMC had initially anticipated, and conditions may only get worse as home values tumble lower while consumers continue to face higher living costs. Meanwhile, the dour outlook for the world’s largest economy has certainly left the Fed in a tight spot, and may lead the central bank to hold a neutral policy going forward.
How To Trade This Event Risk
U.S. Non-Farm payrolls are expected to contract another 330K in November after falling 240K in the previous month, and may trigger a selloff in the dollar as the unemployment rate pushes higher. Job cuts in the U.S. rose 148.8% in November to reach a six-year high of 181,671, while the ADP employment report showed that the economy lost 250K private-sector jobs during the same period. Fading employment opportunities have certainly taken a toll on the economy as the third quarter preliminary GDP reading was revised lower to -0.5% from an advanced reading of -0.3% as households continued to cutback on spending. Personal consumption, which is one of the biggest drivers of growth, fell 3.7% from the second quarter despite expectations for a 3.2% decline, and conditions may only get worse in the fourth quarter as retail spending plunged at a record pace in October. Fading demands from home and abroad has certainly dragged on businesses as well as demands for durable goods plunged 6.2% in October to record its steepest decline in two-years, and the dour outlook for the economy may lead firms to cutback on employment even further as U.S. heads into its longest recession since in 25 years. Fears of a deep and prolonged recession has raised speculation that the FOMC will lower the benchmark interest rate yet again at the December 16th policy meeting as Fed Fund Futures show investors are pricing-in a 60% chance for a 75bp cut, while they hold a 40% chance for a 50bp reduction. Meanwhile, a Bloomberg News survey showed that median forecast amongst the 69 economists polled expect a 25bp cut to 0.75%, which could stoke increased selling pressures for the greenback as investors look for lower borrowing costs. However, as risk trends continue to drive price action in the forex market, the U.S. dollar may benefit from its safe haven status.
Trading the given event risk clearly favors a bearish outlook for the U.S. dollar, but a better-than-expected NFP reading could support a rally in the greenback as the flight to safety continues. As a result, an enhanced payrolls release would set the stage for a bullish dollar trade, and a red, five-minute candle following the release would support a short entry on two lots of EURUSD. Once these conditions are met, we will place our initial stop above the nearby swing high (or reasonable distance), and this risk will determine our first target. Our second target will be based on our discretion, and to preserve our profits, we will move the stop on the second lot to breakeven once the first trade reaches its target.
However, the chances of an improved NFP reading remains bleak as the slew of employment data this week showed the ongoing weakness in the labor market. Therefore, a dismal payrolls release would certainly favor a long EURUSD trade, and we will follow the same strategy as the short mentioned above, just in reverse.
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