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After a flat Non-Farm Payrolls report for August, September’s figures are expected to be positive, which means a dollar negative outcome in the current environment. Recent data leaves room for doubt about a gain in jobs. NFP Preview.

As QE3 is not only off the table, but far away from it, the figures will be mostly used to assess the situation of the global economy, which doesn’t look upbeat.

3 Positive factors

  1. Positive manufacturing sector PMI: The purchasing managers’ index has shown stronger growth and an upbeat employment component. This is positive.
  2. Verizon strike: :The numbers in August were distorted by a strike in Verizon. After the strike is behind is, a correction could be seen now.
  3. Improvement in jobless claims: The number of jobless claims remained stable during most of September and even dropped under 400K. This is positive mostly for the unemployment rate, which might tick down from 9.1% to 9%.
3 Negative factors
  • Government weight: Last month saw no change in payrolls, with the disappointment mostly due to a low private sector gain – only 17K, which offset a loss of the same scale from the government.  The US government isn’t expected to push the number up now.
  • Private sector contradictions: The ADP report for the private sector has shown a gain of 91K jobs. If this is reflected also in the official number, NFP will indeed be positive. Yet ADP and the official figure weren’t too close last month – ADP showed +89K while the official private sector report printed only +17K.
  • Negative services sector employment component: The ISM Non-Manufacturing PMI remained almost unchanged at 53 points in September, as expected. Looking into the report, there is a worrying number: the employment component dropped from 51.6 to 48.7 points – from growth to contraction territory. As this sector is the vast majority of the US economy, it could be the tipping point for the whole report.

Forex reaction

Official expectations currently stand at a gain of around 50K. Such a rise is likely to boost the US dollar only against the yen and weaken it against all the other “risk” currencies which will release a sign of relief as the locomotive of the world will show signs of growth.

A loss of jobs, is materializes, will be the first since September 2011. It will join the general gloom and doom atmosphere and lead to gains in the safe haven dollar and yen against all the others.

Remember:

  • As always, it’s important to remember that this is a unique event that triggers high volatility. Please read the 5  Notes for Trading the Non-Farm Payrolls.
  • The European debt crisis dominates movements in all currencies, and naturally more in the euro. So the Non-Farm Payrolls, the “king of forex trading” may have a more short lived effect than usual.

In any case, volatility is quite extreme, so trade with care.

Further reading:

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