Written by Terri Belkas, Currency Strategist
Full Article
The US dollar continues to consolidate within wide ranges, but remains relatively strong across the majors. However, on Friday morning, US non-farm payrolls are anticipated to fall by a whopping 330,000, which would be the worst decline since 1982, while the unemployment rate is forecasted to reach a fresh 15-year high. Will this news trigger a sharp decline in the greenback, or will the forex market consolidation continue?
What is the Market Expecting for October Non-Farm Payrolls?
Looking at the stats of what the 70 economists polled by Bloomberg News had to say, the range is very wide with the most pessimistic forecast at -470k and the most optimistic forecast at -220k. However, this is the first time ever that non-farm payrolls (NFPs) are anticipated to fall by more than 300k. If NFPs fall in line with expectations, they will surpass the 2001 low of -325k and could even beat out the 1982 low of -343k. Furthermore, the unemployment rate is anticipated to rise to 6.8 percent from 6.5 percent, the highest since 1993. What are the realistic odds that this could happen?
Arguments for Weaker Non-Farm Payrolls
Just by glancing at the list above, it is rather obvious that the odds are stacked in favor of a disappointing NFP release on Friday. Indeed, nearly every single leading indicator for US employment that we follow suggests that November was a month of heavy job losses, as the number of continuing jobless claims remains near the highest levels since late 1982-early 1983 at 3962K in the week ending November 22. Likewise, the employment components of both ISM Manufacturing and ISM Non-Manufacturing (services sector) plummeted to the worst levels since the 1990’s. Meanwhile, you may be wondering why we put consumer confidence into the list of arguments for weaker NFPs. Though the Conference Board’s consumer confidence survey rose during the month of November to 44.9 from 38.8, the index still reflects some of the worst levels on record going back to 1967.
Trading the Non-Farm Payrolls Release This Friday
The release of US NFPs can be very exciting and market-moving for the US dollar. However, we’ve been seeing lately that the reaction of the greenback does not always seem logical, as a weak NFP reading will sometimes be followed by US dollar strength (and vice versa). In fact, US economic data has generally been absolutely abysmal lately, fed fund futures are fully pricing in a 50bp rate cut on December 16, and yet the greenback has remained strong versus most of the majors. Why? In recent months, risk trends have driven price action in the currency markets, with risk aversion benefiting low-yielding currencies like the US dollar and Japanese yen while hurting higher-yielding currencies like the Australian dollar and New Zealand dollar. Furthermore, since the start of November, most of the major currency pairs have held within wide ranges, consolidating the sharp moves seen from July through October.
As a result, the release of NFPs on Friday shouldn’t necessarily be used as a trigger for making a trade. Instead, traders should either avoid trading at the time of the announcement (8:30 ET on Friday) due to the potential surge in USD volatility, or if trading on a longer-term time frame, simply keep that factor in mind and use wider stops. My bias? A weak NFP reading at -300K or lower has the potential to weigh on the US dollar, but with the long-term trend working in favor of dollar strength, I would look at declines in the currency as a buying opportunity
Written by Terri Belkas, Currency Strategist of DailyFX.com
DailyFX.com provides free FX news, trading resources, and market analysis to the forex trading community.
Full Article
The US dollar continues to consolidate within wide ranges, but remains relatively strong across the majors. However, on Friday morning, US non-farm payrolls are anticipated to fall by a whopping 330,000, which would be the worst decline since 1982, while the unemployment rate is forecasted to reach a fresh 15-year high. Will this news trigger a sharp decline in the greenback, or will the forex market consolidation continue?
What is the Market Expecting for October Non-Farm Payrolls?
Looking at the stats of what the 70 economists polled by Bloomberg News had to say, the range is very wide with the most pessimistic forecast at -470k and the most optimistic forecast at -220k. However, this is the first time ever that non-farm payrolls (NFPs) are anticipated to fall by more than 300k. If NFPs fall in line with expectations, they will surpass the 2001 low of -325k and could even beat out the 1982 low of -343k. Furthermore, the unemployment rate is anticipated to rise to 6.8 percent from 6.5 percent, the highest since 1993. What are the realistic odds that this could happen?
Arguments for Weaker Non-Farm Payrolls
- Jobless Claims 4-Week Moving Average Continues to Climb Above Highest Levels Since At Least 2002
- Continuing Claims Rise to the Most Since 1982
- ISM Non-Manufacturing Employment Component Falls to Lowest on Record Going Back to 1997
- ISM Manufacturing Employment Index Dives to Lowest Since 1991
- Challenger Job Cuts Rise 148% to a 6-Year High
- ADP Employment Change Falls By the Most Since November 2001
- Despite Small Gain in November, Consumer Confidence Remains Near Record Low
Just by glancing at the list above, it is rather obvious that the odds are stacked in favor of a disappointing NFP release on Friday. Indeed, nearly every single leading indicator for US employment that we follow suggests that November was a month of heavy job losses, as the number of continuing jobless claims remains near the highest levels since late 1982-early 1983 at 3962K in the week ending November 22. Likewise, the employment components of both ISM Manufacturing and ISM Non-Manufacturing (services sector) plummeted to the worst levels since the 1990’s. Meanwhile, you may be wondering why we put consumer confidence into the list of arguments for weaker NFPs. Though the Conference Board’s consumer confidence survey rose during the month of November to 44.9 from 38.8, the index still reflects some of the worst levels on record going back to 1967.
Trading the Non-Farm Payrolls Release This Friday
The release of US NFPs can be very exciting and market-moving for the US dollar. However, we’ve been seeing lately that the reaction of the greenback does not always seem logical, as a weak NFP reading will sometimes be followed by US dollar strength (and vice versa). In fact, US economic data has generally been absolutely abysmal lately, fed fund futures are fully pricing in a 50bp rate cut on December 16, and yet the greenback has remained strong versus most of the majors. Why? In recent months, risk trends have driven price action in the currency markets, with risk aversion benefiting low-yielding currencies like the US dollar and Japanese yen while hurting higher-yielding currencies like the Australian dollar and New Zealand dollar. Furthermore, since the start of November, most of the major currency pairs have held within wide ranges, consolidating the sharp moves seen from July through October.
As a result, the release of NFPs on Friday shouldn’t necessarily be used as a trigger for making a trade. Instead, traders should either avoid trading at the time of the announcement (8:30 ET on Friday) due to the potential surge in USD volatility, or if trading on a longer-term time frame, simply keep that factor in mind and use wider stops. My bias? A weak NFP reading at -300K or lower has the potential to weigh on the US dollar, but with the long-term trend working in favor of dollar strength, I would look at declines in the currency as a buying opportunity
Written by Terri Belkas, Currency Strategist of DailyFX.com
DailyFX.com provides free FX news, trading resources, and market analysis to the forex trading community.
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