NFP Prep: The fog of war is thicker than usual

*Please note that this marks my last day working at GAIN Capital/FOREX.com. It's been an absolute pleasure to work for such a tremendous group of individuals and a great honor to grace our traders' computer screens over the years. Be sure to stay in touch by following me on twitter: @MWellerFX*

The March Non-Farm Payroll report will be released tomorrow at 8:30 EST (13:30 GMT) with expectations centered on a headline print of 206 after last month’s strong 242k reading.

Unfortunately, due a quirk in the calendar this month, the NFP report will be released before two of the most reliable indicators, the ISM Services and Manufacturing PMI figures. Therefore, the notoriously difficult-to-handicap release will be shrouded in even more uncertainty than usual this time around. That said, the leading indicators that we do have in hand still point to another decent report: during the NFP survey week, initial unemployment claims were essentially unchanged relative to last month at a historically low level (259k), while yesterday's ADP Non-Farm Employment report came out in-line with expectations  at 200k.

Trading Implications

If Fed Chair Janet Yellen's speech earlier this week is to be believed, the Fed has seemingly shifted into an even more dovish (technically "less hawkish") posture of late, so this month's job report would have to be truly spectacular to move the needle on interest rate expectations. As of writing, Fed Funds futures traders are pricing in only a 22% probability of a rate hike in June and only a 57% chance of a rate hike at all this year, according to the CME’s FedWatch tool.

Three possible scenarios for this month’s NFP report, along with the likely market reaction, are shown below:

NFP Jobs Created

Likely USD Reaction

Likely Equity Reaction

< 175k

Bearish

Slightly Bullish

175k-275k

Neutral

Neutral

> 275k

Slightly Bullish

Slightly Bearish

As always, traders should monitor both the overall quantity of jobs created as well as the quality of those jobs. To that end, the change in average hourly earnings could be just as critical as the headline jobs figure, especially with many FOMC voters looking for signs of inflation on the horizon before raising interest rates. Wages actually contracted 0.1% month-over-month in February's jobs report, so dollar bulls will want to see growth return before declaring the report as strong, regardless of the total number of jobs created.

Historically, USD/JPY has one of the most reliable reactions to payrolls data, so traders with a strong bias on the outcome of the report may want to consider trading that pair.

For more intraday analysis and market updates, follow us on twitter (@MWellerFX and @FOREXcom)

Disclaimer: The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.

Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex and commodity futures, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to Forex.com or GAIN Capital refer to GAIN Capital Holdings Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.

The markets are moving. Stop missing out.

OPEN AN ACCOUNT