Alpesh Patel's NEWSLETTERPRO – What to expect from today’s Non Farm Payroll report and how it will affect the currency market

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MORNING BRIEF

Today is an unusual Tuesday for currency traders as it is an ‘NFP-Tuesday’. That might sound weird to seasoned traders’ ears but due to the government shutdown in the US for the past weeks the Non Farm Payroll report for September is scheduled to be released today and it could be a significant one. Investors are very keen to see how the labor market is progressing in the US but we as analysts must keep in mind a very important factor that characterizes this release. Let me explain. Expectations are that the US economy added 180K jobs in September and the market’s reaction to the release will be based on whether the actual figure will beat or miss these expectations. Should the release beat expectations and more people were added in the workforce we expect a Dollar rally but we think that this rally will be short-lived. This is due to the fact that the next report that is bound to come in only 2.5 weeks time will most certainly show a drawdown in workforce, attributed to the recent shutdown in US government sectors. So investors are most likely bound to remain skeptical towards a better than expected printing of the NFP figures and any potential pro-Dollar rally must be approached with reserve. On the other hand however, should figures miss expectations then we could witness a strong Dollar sell-off as investors will assess that this drawdown in workforce will be followed almost certainly by another one in the coming report a few weeks down the road. Given the fact that major currency pairs like the Euro and the Cable have settled in a range-bound move in expectation for the release we feel that either scenario will drive them out of these ranges and offer us trading opportunities.

All eyes fixed on the Non Farm Payrolls report

The Economic Calendar for the day holds only important data from the US labor market. Coming at 13.30 UK time the NFP report and the US Unemployment Rate are scheduled for release and as we mentioned above investors’ eyes and ears are fixed on this printing. It is important to add to our previous comments that this particular release is very important as the Federal Reserve Bank has tied its monetary policy to the unemployment level. This is a very important indicator for the Fed when it comes to deciding whether and when to start tapering its stimulus to the economy and next months’ releases will be a deciding factor.

Economic Calendar

Time

Currency

Event

Importance

Forecast

Previous

13.30

USD

Non Farm Payrolls

High

+180K

+169K

13.30

USD

Unemployment Rate (Sep)

High

7.3%

7.3%

 

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TECHNICAL ANALYSIS & LEVELS

EUR/USD

Euro remained range-bound yesterday for a second day, trapped between the 1.3650 and 1.3700 levels. Our scenario for the day ahead is exactly the same we laid out yesterday: we will enter into a trade when this ranged move breaks out and with the NFP event ahead of us we are pretty confident that this will happen. So should the pair break above the 1.3700 mark then a long entry is advised with targets coming at 1.3725 and 1.3770 and a stop placed below the 1.3645 area. On the other hand, should the pair break below the 1.3650 support then we would like to enter short, target the 1.3630 and 1.3590 areas with a stop just above the 1.3700 resistance. These trades will not be taken with a reduced trade size as suggested yesterday, we will enter on our normal trade size and hunt for profits on a very promising day.

GBP/USD

Unlike the Euro, the Pound did break lower yesterday but it did so late in the Asian session and in an unconvincing manner. Thus, with the NFP report coming in later, we will limit this trade’s outlook so we are better prepared for the upcoming event. Please move your stops at the breakeven price on this trade, if the currency moves back into this ranged area we will have exited the trade with zero losses and if it moves towards our targets then we will get paid for our trade. Now, should the Pound move back into the ranged area we’re referring to we will wait for the NFP release to provide the momentum for the exit from the formation and our scenarios will be the same as yesterday: a long entry just above the 1.6230 mark with targets at 1.6275 and 1.6350 and a stop below the 1.6140 support or a short entry with a downwards break of the 1.6140 support, with targets at the 1.6090 and 1.6010 marks and a stop above the 1.6225 resistance level.

FTSE 100

The FTSE 100 is still on the rise and is very near our second target at 6,670. For the day ahead, we will re-move our stops from the 6,600 to the 6,630 mark to lock in even more profits in case of a retracement. Should the index give you the chance to exit at the 6,660 level please do so as it only 10 points away from our target and it is a significant medium-term resistance that the instrument might find it hard to overcome. So to sum up, stops at the 6,630 mark and we try to exit as close to the 6,660-70 area.

Gold

Gold remained unchanged yesterday and we still think that the exit from this sideways move will provide the instrument with direction and momentum. We will wait for this exit to establish positions but we have updated our scenarios just a bit since yesterday. So we will enter long if Gold manages to clear above the $1,328 area and we will target the $1,337 and $1,353 levels, having put a stop below the $1,310 support. On the other hand, should the yellow metal break below the $1,310 area then we favor a short trade with targets the $1,302 and $1,286 marks, with a stop above the $1,328 level. Again we must stress that Gold is a volatile instrument that tends to become extra volatile when we face important news events as we do today so sensible money management is strongly advised.

All charts have been created using FXCM’s Trading Station platform.

This is the free, time-delayed version of NewsletterPro, a subscription-based product.

If you would like to receive it before 7:30am, please visit InvestingBetter.com to subscribe.

 

 

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