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Non-Farm Payrolls for October are expected to be positive and could provide support for the dollar after the QE2 deci. As the effect of the decennial census is finally gone, the unemployment rate will attract more attention. Here are the things to watch for in the NFP release on November 5th.

As of mid-December, only about 9000 were working around the decennial census project. The census, held in May, sent job numbers up at the beginning of the year, and then down after May. The focus was on the private sector figures, serving as the “core” employment change. This is over now, and the headline number regains its importance.

In September, government layoffs sent the figure down. This time, no big changes are expected in the public sector.

Early indicators boosted optimism – the employment components of the purchasing managers indicators, both in the services and manufacturing services, were better than expected. These are good indicators for the NFP. Weekly jobless claims also surprised with a drop to 434K, not good enough, but still the lowest level in three months.

Housing figures also stabilized for a change, and factory orders were also on the rise.  Also ADP Non-Farm Payrolls, a report for the private sector, came out better than expected, showing a gain of 43K jobs. It’s important to note that the ADP indicator missed the official release many times, but there are enough positive indicators that support a good report.

Expectations and dollar reaction

So, a gain of 50K is likely this time. A rise of above 100K will be excellent for the economy and for the dollar. Another negative month will be  disastrous, and will hurt the dollar.

Another figure that regains its importance is the unemployment rate. Although criticized for not reflecting the real unemployment rate, this figure is still very important.

The current 9.6% unemployment rate was one of the reasons for a second quantitative easing program by the Federal Reserve. The rate caused worries. A drop to 9.2% or lower will be very dollar positive, while a jump to double digits (above 10%) will be very worrying. Expectations are for an unchanged number.

This is a very volatile event and has special characteristics. I recommend reading the 5 notes for Non-Farm Payrolls trading.

All currencies are impacted by the king of forex trading, but two pairs stand out – USD/JPY and EUR/USD. They also tend to make U-turns – reverse their initial reaction after some time after the release.

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