Non-Farm Payrolls for August are expected to show another big drop, but with a gain in the private sector, showing that growth still continues. Here’s a preview for this release, the “king of forex trading” with 7 possible outcomes and expected market reactions.

This is the most important event in forex trading, and has unique characteristics. I highly recommend reading my 5 notes for Non-Farm Payrolls trading, and especially advise newbie traders to be very careful. Now, let’s see what’s awaiting us now:

NFP Background

During August,  many disastrous indicators have been released. Housing has been the biggest issue, with a huge slump in home sales, showing that without stimulus measures from the government, US real estate is in the gutters.

The sharp downwards revision of GDP for Q2, from 2.4% to 1.6%, also weighed heavily. The biggest impact came from Ben Bernanke – the FOMC stated that economic growth was “more modest” than expected and renewed the Quantitative Easing steps by buying government bonds.

This was already too much, and the dollar changed direction – from falling on bad US figures, to rising on the return of risk – fears that the US will drag the world down sent traders to the safe haven dollar, and also the Japanese yen.

Growth and Employment

The key to growth is employment. In a post about the real unemployment rate, I’ve written that while employment usually lags new growth, its taking too much time. Weekly jobless claims, a great indicator for the Non-Farm Payrolls, already passed the 500K mark during August, but fell back down to 472K this week.

Since February, the government’s decennial census continues to impact the headline figure. The government hired hundreds of thousands of people towards the census in May, and is releasing them gradually. As of July, there were 200K people employed around this huge project. Many of them were dismissed during August. This is what weighs on the overall figure and makes it negative.

So, yet again, the focus will be on the private sector change. In July, we’ve seen a gain of 70K. According to the wide Bloomberg survey, a gain of 40K is expected now. But, as noted by Kathy Lien, this wide survey also brought very wide results – the ranges are huge.

We got a hint on private sector payrolls from the ADP report on Wednesday. The correlation between both figures is far from perfect. Nevertheless, as the focus is on the private sector, the unexpected loss of 10K jobs reported by ADP is very worrying.

This loss could also be reflected in the official Non-Farm Payrolls figure, making the headline number surpass 150K, raising the fears of a double-dip recession and triggering risk aversive trading – dollar positive.

Here are 5 scenarios for the Non-Farm Payrolls and their effect on the dollar:

1. NFP at -100K, private sector +40K – exactly as expected. Choppy trading but no significant move.
2. NFP at -70K or better, private sector at +70K or better – better than expected. Dollar gains sharply.
3. NFP at -70K or better, private sector at +40K – better than expected – dollar gains.
4. NFP at -70K or better, private sector unchanged – surprising but mixed – dollar stalls.
5. NFP at -150K, private sector at +40K – disappointing but not too bad – dollar retreats.
6. NFP at -150K, private sector unchanged – disappointing – dollar falls.
7. NFP at -150K or worse, private sector at -40K or worse, a significant loss of jobs in the private sector. This is the worst case scenario that will raise the talk of a double dip recession. In this case the dollar will gain on risk aversion.

What do you think?

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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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The beginning of the new month is busy as always, culminating with the Non-Farm Payrolls. There are lots of other major events as well. Here’s an outlook for the market-moving events that are awaiting us.

The Chinese central bank lifted the peg on the yuan, in a move that was anticipated for a long time. Commodity currencies enjoyed it, while others currencies had only limited gains against the dollar. This gap will probably continue this week as well. Let’s start:

That’s it for the major events this week. Stay tuned for outlooks on specific currencies.

Further reading:

• For a broad view of all the week’s major events worldwide, read the forex weekly outlook.
• For EUR/USD, check out  the Euro/Dollar Forecast.
• For GBP/USD  (cable), look into the British Pound forecast.
• For the Australian dollar (Aussie), check out the AUD/USD forecast.
• For the New Zealand dollar (kiwi), read the NZD/USD forecast.
• For USD/CAD (loonie), check out the Canadian dollar forecast.

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Yesterday it was Spain and today its Portugal – EUR/USD broke below another important technical barrier and continues the free-fall. An update on European events and on technical levels for EUR/USD.

Moody’s put Portugal on review for a credit downgrade. This took EUR/USD to the next level – the 1.2886 support line, which was the low point in April 2009, held strong for only a few hours. Moody’s decision sent the pair below this level. The pair is now trading at 1.2820. That’s not the only event:

The news

This comes after this rating agency declared that Spain’s credit rating will stay unchanged. Also Fitch was quick to say that Spain’s AAA rating won’t be hurt. This was a response to the big rumor.

Yesterday’s rumor of a Spanish 280 billion euro aid request was denied by the Spanish prime minister, José Luis Rodríguez Zapatero. He called it madness and said there is no such plan. The rumor about this possible aid request sent the Euro below 1.3080 and sent the stock markets down. The dollar enjoyed strength against other currencies.

While we’re dealing with the Iberian countries of Spain and Portugal, the Greek crisis is far from over. The coalition of Angela Merkel isn’t too keen on giving Greece the needed help. Also other European countries aren’t too eager. Also here in Forex Crunch, the news about the possible Spanish aid request generated references from German, Austrian and Finnish sites.

Further reading: Kathy Lien says that bailouts don’t prevent contagion and explains this point. Now let’s look at the technicals:

EUR/USD technical levels

EUR/USD broke 1.3080 and 1.2886 within  24 hours. These lines now provide immediate resistance for a recovery of EUR/USD. But let’s look down.

The next line of support is at 1.2707, a low point in February 2009. But this is only a minor support line. 1.2560 already provides stronger support – it was a support line more than once at the end of 2008 and the beginning of 2009.

Even lower, 1.2460 is another line of minor support and its followed by the ultimate line – 1.2330. This was the bottom for the Euro in October 2008, at the height of the financial crisis. EUR/USD didn’t trade below this point since April 2006.

More reasons for dollar strength

Also the release of the American ADP Non-Farm Payrolls assists the dollar – ADP not only showed a gain in jobs, but also last month’s report, was revised to the upside. Last month originally saw a drop of jobs, contradicting the government’s Non-Farm Payrolls that showed a gain in the private sector.

Now, ADP has aligned with the government, not in the numbers, but in the direction. We have a fresh NFP release in two days. Here’s my Non-Farm Payrolls preview.

It certainly looks like the dollar’s storm will continue.

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Today’s highlights are the Australian GDP and American ADP Non-Farm Payrolls, which will raise the tension towards Friday’s big event. Let’s see what’s up for today.

The low expectations for Friday’s Non-Farm Payrolls are favorable for the dollar. Here’s my Non-Farm Payrolls preview. Let’s start today’s review:

British Nationwide Consumer Confidence starts the day with an expected drop of confidence to 71 points, after reaching a peak at 73. Traders lose confidence in the Pound.

Later in Britain, the purchasing managers’ index for the services sector  will complete the series of PMI releases with an expected rise to 55 points.

For more on the British Pound, check out the GBP/USD forecast.

In Australia, GDP is released one day after the rate hike. After a disappointing growth rate of 0.2% in Q3, a much faster growth is predicted now 0.9%. The Aussie was left unexcited by the rate decision. Will it move after the GDP release?

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

In Japan, Average Cash Earnings are predicted to fall by 1.2% on a yearly basis, less than last time. On the other side of the day, quarterly Capital Spending is predicted to show a drop of 18.1% (annually). The Japanese yen is rather stable.

In Europe, German Retail Sales will probably drop by 0.5% after rising last month. Later, the all-European retail sales are predicted to drop as well, by 0.3%.

EUR/USD is supported by 1.3423. This is a critical line. For more on the Euro, read Casey Stubbs’ latest analysis and my EUR/USD forecast.

In the US, two job indicators are released: Challenger Job Cuts and the ADP Non-Farm Payrolls. The latter, ADP NFP, is expected to show a loss of 13,000, slightly better than last month’s loss of 22K. ADP doesn’t always correctly predict the outcome of the Non-Farm Payrolls on Friday.

Later in the US, ISM Non-Manufacturing PMI is expected to rise from 50.5 to 51. This complements Monday’s ISM Manufacturing PMI which is doing better.

The American events aren’t over: the Beige Book will give a wide overview on the American economy and can impact the expectations for the FOMC meeting later in the month. Also note a speech by FOMC member Eric Rosengren. He might give some hints about future policy as well.

That’s it for today. Happy forex trading!

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Non-Farm Payrolls must show gains in jobs this time – the high expectations became higher with the release of the ADP figure that was better than expected. Will there be dollar rally on Friday? Here’s a preview for the Non-Farm Payrolls for January.

Last month’s Non-Farm Payrolls were disappointing and showed a loss of 85,000 jobs in the US in December. There was one point of light – November’s number was revised to the upside and was positive – 4,000 jobs were gained in November. This is what stopped the dollar from dropping sharply.

ADP Non-Farm Employment Change, which measures the jobs in the private sector, showed a loss of 22,000 jobs. While this is still a negative number, it was better than early expectations for 31K lost jobs. In addition, last month’s number, 84K lost jobs was revised to the upside – 61K lost jobs.

This preliminary figure comes two days before the Non-Farm Payrolls and is sometimes considered as the “mini-NFP” or an indicator. I don’t take this as an indicator, but it sure is a market mover – the dollar made gains immediately after the release. EUR/USD, that already flirted with the 1.40 line, fell back down. GBP/USD fell below 1.60.

Apart from moving the markets in the short term, the ADP NFP creates expectations for Friday. Current market expectations are for a gain of 13,00 jobs in January. Some analysts are expecting a loss of jobs while others are expecting a higher gain.

A positive number will boost the dollar on Friday. It will raise the chances of a rate hike, or at least the removal of the pledge to keep the interest rates low for “an extended period of time”. A positive number is necessary to erase the doubts about the Q4 GDP, which was strong but was jobless. A jobless recovery isn’t enough for Americans, and isn’t enough for the dollar.

If Non-Farm Payrolls show a loss of jobs, this will be disastrous for the dollar, as the expectations are very high now.

I’ll be following the Non-Farm Payrolls release and the impact on the forex market with Currensee and SpotEuro Trader Alex Kazmarck (10 years of experience) for a special live trading room webinar featuring analysis and commentary before and after the release of this very important economic indicator.

I’ve watched this webinar last month and it was fascinating. The focus is on the EUR/USD pair. You get to learn about trading news events, live technical analysis and derivation of support and resistance levels before the release of the number. The webinar begins half an hour before the release, at 13:00 GMT and is free to attend. The number of seats is limited, so if you’re interested (I enjoyed it!), then I recommend registering to it here.

Further reading: 5 Notes about Non-Farm Payrolls Trading.

The week of Thanksgiving, which was expected to be calm, was very volatile, with new lows in the dollar, that were proved temporary with the Dubai crisis. The upcoming week is already full of important indicators: rate decision in Europe and Australia, GDP from Europe, Switzerland and Canada, and the king of forex: American Non-Farm Payrolls. There are many more events to start off the new month. Let’s see what’s up this week.

Another sharp move was seen by the Japanese Yen: USD/JPY reached 14 year lows. The safe haven currency enjoyed the crisis as well. The Dubai crisis sent the Yen crosses face down to the mud. The dollar Yen correlation worked perfectly.

Monday, November 30th: New Zealand start the week early with Building Consents, which showed a nice rise last month. Japanese Prelim Industrial Production is expected to rise, pushing the Yen even higher.

In Britain, GfK Consumer Confidence is expected to improve, but remain negative. European prices are expected to rise for a change – the CPI Flash Estimate is predicted to rise by 0.5%.

Canada posts its monthly GDP for September, and it’s expected to turn positive after last month’s drop, that didn’t meet expectations. In the US, Chicago PMI is the first indicator for this week.

Tuesday, December 1st: Australia’s RBA will probably raise the rates once again, and send the Cash Rate to 3.75%. The positive remarks by Glenn Stevens and other officials are expected to be seen also in the accompanying RBA Rate Statement. Australia is way ahead of other Western counties in the interest rate.

Swiss GDP for Q3 is expected to rise by 0.3%, ending the recession that lasted 3 quarters. USD/CHF was already below parity before the Dubai crisis broke out.

In Germany, Retail Sales are predicted to turn positive while the Unemployment Change isn’t expected to budge, after last month’s excellent drop. The all-European Unemployment Rate is predicted to tick up once again, to 9.8%, a number that impacts policymakers.

In Britain, Manufacturing PMI is predicted to edge up. Nationwide HPI is due on Tuesday, and is expected to rise by 0.4%, like last quarter. Another housing figure, Halifax HPI is also predicted to be positive, rising by 0.8%. The British Pound got a reality check last week, with a confirmation of the recession.

On Tuesday, more serious American figures are due: ISM Manufacturing PMI is predicted to remain stable after the previous rises. Pending Home Sales, are expected to dip after the big surprise last month.

Wednesday, December 2nd: Two preliminary employment figures are due before the Non-Farm Payrolls on Friday: Challenger Job Cuts and ADP Non-Farm Payrolls (or ADP Non-Farm Employment Change if you wish), which are predicted to drop by 151K, less than last month’s disappointing 203K drop.

Also note the Beige Book, which will a give a broad overview of the American economy.

Thursday, December 3rd: Australian Retail Sales are predicted to rise once again, showing the strength of the Australian economy. In Britain, Services PMI complements the Tuesday’s Manufacturing PMI and is expected to rise again.

Revised GDP in Europe, is expected to confirm the 0.4% rise in Q3, that was accepted with hesitation.

The European Central Bank is expected to leave the interest rate unchanged. Jean-Claude Trichet isn’t expected to move the Minimum Bid Rate from 1%, but he might say something about the exit strategy at the ECB Press Conference. Also talks of a strong dollar will move move the markets. The Euro escaped the range, but only for a short time.

American weekly Unemployment Claims surprised last week with a nice drop, but are now expected to rise back to 480K, one day before the NFP. ISM Non-Manufacturing PMI complements the ISM Manufacturing PMI and is also expected to rise, up to 51.8K.

The more interesting event is a testament by Federal Reserve Chairman Ben Bernanke. He is expected to appear before the Senate Banking Committee. Contrary to speeches and to the FOMC statement, he might have to answer questions and get out of his comfort zone of blurry messages. The markets will rock.

Friday, December 4th: Swiss CPI is predicted to rise by 0.2%, following a higher rise last month.

Canada’s Unemployment Rate is expected to stay stable at 8.6% after excellent figures two months ago, and a very disappointing rise last month. Canadian Employment Change isn’t expected to be wild this time, after the sharp moves in previous months.

American Non-Farm Payrolls are expected to drop by 115K. This figure, the undoubted king of forex trading, is predicted to move the markets throughout the day. The complementary figure, the Unemployment Rate, is expected to remain at 10.2%, the bad figure that was recorded last month.

That’s it for the first week of December. I will later publish specific currency coverages, before the start of the new week. And here they are:

Further reading:

• For the EUR/USD, read the EUR USD forecast.
• For the beaten British Pound, look into the GBP/USD forecast.
• For the Australian dollar, read the AUD USD forecast
• For USD/CAD, read the Canadian dollar forecast.

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