October Nonfarm Payroll (Consensus Estimate: -200,000 to -250,000 Jobs)

Friday, November 7, 2008

The September jobs report was rather gloomy as U.S. employers cut payrolls at the steepest rate in five-and-a-half years. An unexpectedly high 159,000 jobs were slashed as employment thinned for a ninth straight month, strongly suggesting the economy may be in recession.

The unemployment rate was unchanged from August at 6.1 percent—the highest rate since the colossal 212,000 job decline in March 2003—as 121,000 people left the workforce.

Job cuts were across the board in September following revised losses of 73,000 jobs in August and 67,000 in July, showing an acceleration of decline in employment. Nearly 51,000 manufacturing jobs were lost last month on top of 56,000 cut in August, bringing the total number of consecutive months in which manufacturers slashed their payrolls to 27.

For week ending November 1, the Labor Department reported that the advance figure for seasonally adjusted initial claims was 481,000, a decrease of 4,000 from the previous week's revised figure of 485,000. They also reported a four-week moving average of 477,000, unchanged from the previous week's revised average of 477,000.

Despite September's dismal numbers, total job losses remain historically low based on revisions to July and August data. The economy has lost nearly 750,000 jobs since employment peaked in December 2007, which is when many economists say a recession began. By contrast, however, payrolls fell an astounding 1.63 million during the period between March and November 2001 in the recession of that year, and continued falling for almost a full two more years, bringing the total amount of jobs lost to 2.7 million.

Given that the labor market typically lags the broader economic cycle, however, there is little doubt that the worse is yet to come as the economy's cyclical downturn continues.

Now that the presidential election is over, focus is sure to shift back to economic matters. All eyes will be on this week's NFP which—if consensus numbers are accurate—will almost certainly hasten the decline of U.S. equities and give a strong boost to U.S. treasuries, boding well for the greenback.

What is the NFP report?

Of all the world monthly economic reports, the monthly U.S. Non Farm Report (NFP) is the most highly anticipated and has the most dramatic impact on the currency market.

The report, which is released on the first Friday of each month and states the previous month's numbers, provides detailed industry data on employment, hours and earnings of workers on nonfarm payrolls. These numbers are the best way to gauge the current state of the US market as well as the direction that the economy is heading.

What's more, the employment numbers provided by the report are used by the Fed to shape their interest rate policies. The health of the U.S. economy and interest rates translate to the strength or weakness of the U.S. dollar.

Risk with News Trading

As with all major economic releases, there could be significant price volatility with this announcement. Currency spreads will typically widen just before the release and will remain wide for a few minutes after. If the announcement is a shock to the consensus estimate, the price of the currency pair could gap significantly. For example, the price on the EURUSD trading at 1.2820 - 1.2822 just before release could gap up 60 pips to 1.2880 - 1.2882, without any available prices available between the price of 1.2820 and 1.2882. A Buy Stop placed before the announcement at 1.2830 would turn into a Market Order and would be filled at the prevailing price 1.2882. The same would be true with a Sell Stop.

Approximately four years ago we saw a gap of approximately 200 pips on the GBPUSD on a Non-Farm Payroll announcement. While this is an extreme example, it nevertheless is a possibility with trading during economic announcements. Consequently, plan on the spreads widening and, if you are trading with a Buy or a Sell Stop entry order, do not anticipate being filled at your entry price. You will be filled at the prevailing market price after the release, which could be significantly different from your desired price of your entry order.

Please be advised that due to the volatility of price fluctuations during the news, it is possible to see a delay in execution due to the additional verification necessary for each trade.

Article from IBFX. It seems news trading is not a good option if you do not know the news before it breaks out

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