The upcoming Non-Farm Payrolls release on April 2nd should be significantly different than previous releases. The special timing and the a realization of the high expectations could send the dollar way up. Here’s a preview.
For newbies, and not only them, I recommend reading my 5 notes for Non-Farm Payrolls trading. This is always a very exciting, yet risky event. And this time, there’s an extra element:
As usual, the American Department of Labor releases the Non-Farm Payrolls figure on the first Friday of the month – April 2nd. This time is different – it’s Good Friday. Banks in all the other major countries in the Christian world are on holiday – Germany, France, Britain, Canada, Australia and New Zealand are all on holiday. Most traders in these countries as well as in the US are also on holiday.
So, the most important indicator for forex traders is released on very thin volume. On similar holidays, no figures are released, so the thin volume means that the currencies don’t move. This time is different – the small amount of participants on that will react to the NFP might cause extreme moves – moves that won’t respect technical barriers. Volatility can be much higher than usual – a wild west.
High Expectations
Economists are expecting a big gain in jobs – the consensus currently stands on about 180K. In recent months, there were hopes for a gain in jobs, and the figure disappointed. Since the beginning of global crisis, a gain in jobs was seen only once – in November 2009. This rise wasn’t celebrated, as the initial report for November showed a loss of jobs, and only the revision saw a gain.
So why is a rise expected this time? Last month’s drop of 36,000 was blamed on the harsh weather that the US encountered during February. Weather was better in March, so this excuse is off the table.
There are more meaningful signs that this time is going to be better – weekly jobless claims fell in the past few weeks, from a peak of 496K to 442K last week.A drop in unemployment claims means more people at work.
Another sign is that 23 US states reported a gain in jobs in February. Four states report a year-over-year drop in the unemployment rate. This improvement wasn’t seen in February’s NFP, and may be reflected now.
The third indicator is the government’s census which is due in May. Workers were already hired for this big project during March – so here are more job gains.
Possible scenarios
Last month we’ve seen how low expectations led to a small positive surprise that led to gains for the greenback. Now this time, high expectations can be risky for the dollar – if expectations aren’t met, the dollar will dive, and it will drop through thin air.
But if expectations are finally met, and a rise in jobs is reported for the latest month, not a revision, the dollar could enjoy the thin volume to extend its gains.
One currency which is especially vulnerable is the British Pound. GBP/USD lost some ground, but didn’t lose an important technical level. GBP/USD didn’t lose 1.4780. In the last time that the Pound lost an important technical level, it collapsed quite badly. A good NFP will probably send it over the cliff.
Another vulnerable currency is the Euro. EUR/USD lost an important technical line, 1.3423, last week, and could extend its losses. This can sure happen before the NFP.
I’ll be following the Non-Farm Payrolls on this webinar. It begins on 12:00 GMT, half an hour before the release, and is free for Forex Crunch readers. I’ve enjoyed the previous sessions.
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