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The upcoming release of the Non-Farm Payrolls will be a correction from the previous release due to government’s cut in jobs. Here’s a preview for  the  NFP on July 2nd, and the things to watch out for.

The decennial census that was held in May had an impact on Non-Farm Payrolls from the beginning of the year. Hiring of people to prepare the census lasted for a few months and culminated in May. We’ve seen a huge number last month – a gain of 431K. This is about to change:

The hangover comes now – the government is cutting the temporary workers that were hired and this will probably turn into a big loss of jobs – 100K this time. The markets are ready for a blow.

Similar to last month, the focus is on private sector hiring once again. Then, there were high expectations that this core number, uninfluenced by the census will rise by 180,000 jobs. But this turned into a bitter disappointment with only 41,000 jobs gained.

Also now there are high hopes – expectations stand on a gain of 113,000 jobs in the private sector, nearly three times last month’s move. Contrary to previous months, the earlier release of the ADP Non-Farm Payrolls is of high importance this time. As the focus is on the private sector, this independent release of private sector jobs could serve as a great indicator.

The expectations from the ADP release on Wednesday stand on a gain of 58K, about half of the expectations from the private sector gain in the official NFP. If the expectations from ADP are met, we could face a bigger slump in the NFP this time.

Regarding the unemployment rate, expectations are for a rise from 9.7% to 9.8%. A rise to 10% or more will be alarming while a drop to 9.5% will be a good sign. Any number  in between will be  disregarded  and will leave the focus on the NFP.

Impact on forex

In the recent FOMC Statement, Ben Bernanke and his colleagues lowered the forecast for the economy. This hurt the dollar. Another disappointment in jobs will probably hurt the dollar yet again, and a positive surprise will boost it.

This means that the risk factor will be rather muted. When the risk factor is in play, a disappointing NFP will boost the dollar. Still, this is the most volatile event in forex trading. As I’ve written in the article 5 notes for Non-Farm Payrolls Trading, the initial reaction to the release at 12:30 GMT is not necessarily the direction that we’ll see afterwards.

So, trade with care and good luck!

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