The upcoming Non-Farm Payrolls release on June 4th holds high expectations – a job gain of 500K jobs, the best since 1997, but this includes special government hiring. Here are the things to watch for in this release, and the expected impact on currencies.
It’s important to stress that the Non-Farm Payrolls release is the most volatile event in forex trading, and causes very high volatility. I suggest you read my 5 notes for Non-Farm Payrolls trading. The comment regarding the risk factor is very important these days. OK, let’s see what’s special this time:
The decennial government census already had an impact on previous Non-Farm Payrolls releases. The impact will come to a climax in June 4th’s report. Previous months were dedicated for preparations, and this reported month, May, is when the census was held.
So, a big bulk of the gain in jobs comes from the government. Private sector hiring is only a small part of this month’s report, but it’s of high importance, as it serves as the core value, only slightly affected by the census, and supplying a long-term value.
The markets will pay less importance to the headline number, but rather focus on hiring in the private sector, which is expected to reach 180,000.
Contradicting rise in the unemployment rate
Last month saw a huge leap of 290K jobs, far better than expected. The figure for the previous month was also revised to the upside. But the unemployment rate jumped from 9.7% to 9.9%, very close to the scary 10% figure.
Despite the huge gain expected in jobs in the public sector, and the neat gain in jobs in the private sector, the unemployment rate is expected to drop by only 0.1% to 9.8%. The best explanation for last month’s rise and this month’s expected small dip is that the deep crisis sent many people off charts. As they stopped being part of the workforce, they didn’t contribute to the unemployment rate.
Now that they’re starting to get back, they enlarge the total workforce in a similar scale to the gain in jobs, thus leaving the unemployment rate almost unchanged.
Impact on forex trading
Yet again, this seems to be another win-win situation for the dollar, especially in the Euro/Dollar and the Pound/Dollar. If the results come as expected, it will be another sign of the American economy’s strength. This strength stands out against the great European weakness and against the Pound that follows it.
On the other hand, the Canadian and Australian economies are also doing quite well, and could still rise after this result. AUD/USD has lots of room to rise after the recent falls, driven mostly by risk aversive action. A good NFP will trigger risk appetite behavior and send the Aussie up.
Canada expects a busy week, with a possible rate hike, GDP numbers and employment figures just 90 minutes before the NFP. If Canadian numbers are OK, USD/CAD could fall.
Scenarios for surprises – dollar strength expected.
A disappointing outcome of the Non-Farm Payrolls or a rise of the unemployment rate above 10% could trigger risk aversive trading across the board, hurting also stronger currencies. We’ve seen the dollar rise after weak GDP and weak jobless claims last week. In these chaotic days, bad news, even if they come from the US, trigger dollar buying.
The opposite scenario, of a big drop in the unemployment rate and an even-higher gain in jobs, the dollar will stand out against all the currencies, and will fully justify its safe haven status.
We have lots of other major events before Friday’s NFP. How do you see the Non-Farm Payrolls unfold for forex trading?
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