The US economy is growing, but without a gain in jobs. A loss of jobs will also be seen in the upcoming Non-Farm Payrolls release on March 5th. How will this impact forex trading? Here’s a preview.
On one hand, the American economy is growing nicely. I had doubts about the first release that showed an annual growth rate of 5.7%, but these doubts were erased with the second release, that was revised to 5.9%. But that’s only one side of the story.
On the other hand, this economic growth isn’t felt in the job market. There usually is a gap of about 6 months between the return to growth to the impact on jobs, as employers are cautious after an economic turn-down. The American job market is moving very slowly, still stabilizing, but not rising again.
Previous confusing figures
In previous months, expectations were high, but the outcome disappointed. Well, the fresh release of the Non-Farm Payrolls disappointed, but this headline figure was released with other positive figures that caused confusion. A quick reminder of the previous months:
In January, some economists expected a rise in jobs, but the consensus was for a small fall. A big drop in jobs was announced, but the revision of the previous month to job growth caused some confusion.
In February, the consensus of economists was already on the positive side. But yet again, the American job market lost 20K jobs. Also in this case, another figure came to the rescue: the unemployment rate, that fell surprisingly from 10% to 9.7%, quite a drop. The dollar eventually won.
Low expectations could turn into a surprise
This time, expectations are low. The recent surveys show an expected drop of 40K, and a rise in the unemployment rate from 9.7% to 9.8%. The explanations behind this pessimism is the harsh winter that the US experienced in February, hurting the economy.
Also by looking at the weekly unemployment claims, a loss of jobs can be seen. This weekly saw claims fluctuate around a certain range – 430 to 480K. Last week’s number was 496K. A rise in jobless claims can certainly mean another month of job losses, but the actual result is very hard to predict.
In many cases, low expectations reduce the chance of a disappointment. In forex trading, the current trend is dollar bullish. If expectations are met, the dollar will continue this trend and continue rising gradually.
And if we finally see a positive surprise? Less jobs lost? Maybe finally seeing job gains? In such a case, the dollar will not only rise – it’ll jump. Only a very big loss in jobs and a return to a double-digit unemployment rate, will send the dollar lower.
Different Impact on Currencies
EUR/USD is usually the strongest vehicle of the dollar’s mood. Also the Pound feels it quite well, and it’s now especially vulnerable. A good jobs report will send GBP/USD way down. This is also due to internal British problems.
Also my favorites, the Aussie and the loonie, will lose ground on such dollar strength, but they won’t get a strong blow. Better jobs in the US mean more risk appetite, which these currencies enjoy. So, they’ll suffer from dollar strength, but this will be not from a risk aversive sell-off.
Anyway, the monthly release of the Non-Farm Payrolls will always cause volatility, and will shake the markets. I suggest trading with care. Here are my 5 notes for Nonfarm Payrolls trading, which are always relevant.
You’re welcome to follow the event with forex expert Alex Kazmarck in a live trading session. I’ve watched this free live session in previous NFP events and it was great.
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