NON-FARM Payrolls: Expectations and Scenarios
I sat down this morning thinking that I’d write some sort of April fool’s joke type piece saying that the Fed had raised rates in an ad-hoc meeting in a New York City bunker overnight, but I quickly decided against it to avoid being sued…
April Fool’s Day or not, today is also NFP Friday. The Fed rhetoric leading into tonight’s labour market print has maybe dampened the importance of this particular release a little bit, but it’s an NFP number nonetheless which means volatility and trader expectation.
With the tick over to the new month, the US Dollar actually experienced its worst quarter in more than five years. When you stop to think that this is actually a quarter following a rate hike, that strikes a chord with me. This is why throughout my writing, I try to express the importance of market expectations and where the greatest risk lies if these expectations are not met. The actual decision or data point itself is not as important.
While the US labour market has been the one shining light beaming out of the faltering US economy, Janet Yellen and her boys at the Fed have made it crystal clear over the last month or so, that labour market strength alone will not be enough to tilt their hand toward a second hike. Unless there is a significant pickup in stubbornly low inflation as well as the ever present global growth factors, a hike in 2016 just isn’t going to happen.
This leads me to think that no matter the NFP number that prints tonight, it is more likely to be USD negative than positive. Of course you can’t be sure, but you can assess in which direction the greatest risk is posed. In this case I would say USD negative, and here is why:
If NFP beats expectation: The number could be ignored as markets take Yellen on her word that continued good labour market numbers aren’t enough for the Fed to move again. A spike on the headline print could very well happen, but the ADP number was nothing to write home about.
If NFP misses expectation: The sole ‘good news’ element of the US economy right now will have been lost, and combined with the Fed’s reluctance to move, USD will likely drop, Potentially drop hard.
With price sitting at major resistance on EUR/USD, does this suggest a break-out to the upside on the cards?
We will be taking a look at some short term tradable scenarios in further detail on the @VantageFX Twitter feed throughout the trading day, so come and say hello!
Just a heads up that ISM Manufacturing PMI, one of the leading tells for the month’s NFP number, is actually released an hour and a half after NFP tonight. While it doesn’t help the economists in trying to pull out the expected NFP number, it does give traders an opportunity for a post NFP move if you’re still in the game.
Chart of the Day:
On NFP Friday, it’s smart to do an overview of both the US Dollar as well as the S&P 500. But having done the S&P a couple of times this week already, lets mix it up a little and take a look at trading Gold.
The weekly chart is where the action has been, basically since the famous ‘tulipmania like top’ back in 2011. Contrary to the recent bullish headlines, it is important to consider that this latest 2000 pip rally is still just a counter trend move, within a longer term bearish trend.
Over the last month or so, price has flirted with trend line resistance. Flirted with a break out, but it has held.
Zooming into the 4 hour chart, you can see the price action I’m talking about when I use the word flirting.
The level is still very much being respected and as of this morning, price has tucked back in underneath trend line resistance. The fact we are in a long term bearish trend makes the touch from the underside of the line much more significant, and gives you a nice area to manage your risk around.
On the Calendar Friday:
CNY Manufacturing PMI
CNY Non-Manufacturing PMI
CNY Caixin Manufacturing PMI
GBP Manufacturing PMI
USD Average Hourly Earnings m/m
USD Non-Farm Employment Change
USD Unemployment Rate
USD ISM Manufacturing PMI
Dane Williams – @VantageFX
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