Trading the News: U.S. Non-Farm Payrolls
What’s Expected:
Time of release: 07/08/201112:30 GMT, 8:30 EST
Primary Pair Impact: EURUSD
Expected: 105K
Previous: 54K
DailyFX Forecast: 70K to 120K
Why Is This Event Important:
U.S. Non-Farm Payrolls are expected to increase another 105K in June following the 54K expansion in the previous month, and the faster pace of growth could spark a bullish reaction in the U.S. dollar as the data instills an improved outlook for the world’s largest economy. As the recovery in the labor market gathers pace, the Federal Reserve may raise its fundamental assessment, and the central bank may continue to unwind its emergency measures in the second-half of the year as policy makers expect to see a economic activity expand at a more rapid pace in 2012. However, as risk trends continue to influence price action in the foreign exchange market, a positive development could lead currency traders to increase their appetite for yields, and the U.S. dollar may trade heavy going into the end of the week as market sentiment improves.
Recent Economic Developments
The Upside
| Release | Expected | Actual |
| ADP Employment Change (JUN) | 70K | 157K |
| ISM Non-Manufacturing (Employment) (JUN) | 54.1 | 54.0 |
| ISM Manufacturing (Employment) (JUN) | 59.9 | 58.2 |
The Downside
| Release | Expected | Actual |
| Challenger Job Cuts (YoY) (JUN) | -- | 5.3% |
| Factory Orders (MAY) | 1.0% | 0.8% |
| Industrial Production (MAY) | 0.2% | 0.1% |
As the recent batch of data highlights a positive reading for NFP’s, we could see the results top market forecast, and the recovery in the labor market may gather pace in the second-half of the year as economic activity is expected to expand at a faster pace in the coming months. As mentioned by my colleague Christopher Vecchio, the ADP employment report has been a good leading indicator in recent months, and the marked rise in private payrolls could certainly translate into a stronger NFP reading. However, the rise in planned job cuts paired with the slowdown in production could translate into a soft employment report, and businesses may scale back on hiring as they cope with higher input prices. In turn, the Fed may continue to endorse its zero interest rate policy throughout the second-half of the year, and the central bank may look to support the economy going into 2012 as it aims to encourage a sustainable recovery.
Potential Price Targets For The Release
How To Trade This Event Risk
Projections for a faster pace of employment growth certainly reinforces a bullish outlook for the greenback, and the market reaction following the report could set the stage for a long U.S. dollar trade as the economic outlook improves. Therefore, if payrolls increase 105K or greater in June, we will need a red, five-minute candle following the release to establish a sell entry on two-lots of EUR/USD. Once these conditions are met, we will place the initial stop at the nearby swing high or a reasonable distance from the entry, and this risk will generate our first target. The Second objective will be based on discretion, and we will move the stop on the second lot to cost once the first trade reaches its mark in order to lock-in our profits.
On the other hand, slowing demands paired with higher input prices may lead businesses to keep a cap on their labor force, and a dismal employment report could exacerbate the recent decline in the greenback as it reinforces a weakened outlook for future growth. As a result, if the economy adds less than 70K jobs from the previous month, we will carry out the same setup for a long euro-dollar trade as the short position mentioned above, just in reverse.
Impact that the U.S. Non-Farm Payrolls report has had on USD during the last month
| Period | Data Released | Estimate | Actual | Pips Change (1 Hour post event ) | Pips Change (End of Day post event) |
| MAY 2011 | 06/03/2011 12:30 GMT | 165K | 54K | +27 | +143 |
May 2011 U.S. Non-Farm Payrolls
| Employment in the world’s largest economy increased 54K in May after expanding a revised 232K in the previous month, while the jobless rate unexpectedly climbed to an annualized 9.1% from 9.0% during the same period to mark the highest reading since December. A deeper look at the report showed a 83K rise in private payrolls amid forecasts for a 170K rise, with manufacturing jobs slipping 5K to post the first decline since October, while public sector employment weakened another 29K after falling 19K in the previous month. The slowing recovery in the labor market certainly dampens the outlook for the economy as private sector consumption remains one of the leading drivers of growth, and the Federal Reserve may preserve its zero interest rate policy throughout the remainder of the year as it aims to encourage a sustainable recovery. The initial reaction to the dismal NFP report was certainly short-lived as the EUR/USD pared the decline to 1.4450, and the greenback continued to lose ground throughout the North American trade as the exchange rate settled at 1.4633 at the end of the day. |  |
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