Trading in Europe are peaceful. British Pound consolidated at the level of 1.4418. The euro fell to 1.1136. According to the latest quotations is trading at 1.1143. The market is in anticipation of the publication of the report on the labor market in the US (Non-farm Payrolls). In this regard, market participants ignored the European statistics. To help beginners:
--Farm Payrolls Non (the NFP) - this is a report that shows how many new jobs created in the non-agricultural sector of the US in the past month. Rayrolls - it's payroll, which is issued by the salary to employees. The report on the US employment market is published on the first Friday of each month at 16:30 MSK. Prior to the transfer of arrows coming out at 15:30 MSK.
NFP has a strong impact on the foreign exchange market, so traders are wary of these data. After the publication of the NFP, if the deviation of the actual value of the forecast have been significant, the market for a few seconds takes off. Work on the NFP is risky, so many traders before the publication of the report and try to close in time to watch the news from the market.
Indicator unpredictable, and the actual value is almost always deviates from the forecast of an average of 30-40 thousand. This, we emphasize, is about the average deviation from the forecast values. Deviations can be as high as 100 thousand. Besides constantly revised figures for the previous two to three months.
Market reaction to the April report
On Friday, May 6, left a disappointing report on the US labor market. The number of new jobs in the US non-farm payrolls for April increased by 160 thousand. The forecast of 202 thousand. The figure for February was revised downwards from 245 to 233 thousand. In March the value was revised from 215 to 208 thousand. General review was minus 19 thousand.
Unemployment remained unchanged at 5.0% (forecast was 5.0%, previous 5.0%). The index of average hourly earnings in the US was 0.3% in April (forecast was 0.3%, the previous value was revised from 0.3% to 0.2%).The level of involvement in the labor force decreased by 0.2% to 62.8%.
On the news, the European currency has strengthened against the dollar by 55 pips to 1.1479, from which followed its sale. By the close of trading in the US exchange rate fell to 1.1386. Pound / dollar reacted to the report an increase by 58 points to 1.4543 from where it fell by 129 points to 1.4414. The fall of the euro has been restrained because of rising cross euro / pound exchange rate.
For me, it remains a mystery why the bulls quickly gave up and bought back the dollar. On Monday, the dollar continued to strengthen.
NFP Forecast for May
It is expected that the US economy 164 thousand was established in May of new jobs, unemployment will drop to 0.1 to 4.9%, the average hourly wage -. 0.2%.
Previously published macroeconomic indicators in the US, have a positive impact on the NFP:
Last report ADP showed that in May, the private sector has created 173 thousand. Jobs against the expected 175 thousand. The April value was revised upwards by 10 thousand., To 166 thousand. ADP index has a positive correlation with the NFP, but in the absence of other news drivers before the Fed meeting has an impact on dollar pairs.
index of business activity in the manufacturing sector from the ISM rose from 50.8 to 51.3 (+0.5) in May. The employment index remained unchanged at 49.1.
consumer sentiment index from the University of Michigan rose from 89.0 to 94.7 in May. consumer expectations index rose from 77.6 to 84.9.
The published data, which have a negative impact:
The consumer confidence index in May was 92.6 vs. 96.0 (previous value was revised from 94.2 to 94.7).
What fluctuations are possible for different values of NFP for the major pairs at 15:30 MSK?
Index NFP has a strong influence on the currency market. After its publication courses are broken up and for a few seconds pass dozens of items, resulting in increased volatility. Between the prices Bid and Ask spread widens. This should not be surprised to know and volatility, as well as slippage on stop orders at the time of the news release.
Also important NFP and other components: the proportion of the labor force and wages. Their decline is the falling dollar, and growth - increase. Fed to increase interest rates wants to see stable growth of consumer price inflation and wages.
As at 15:30 MSK on the movement of currencies is affected by several parameters, consider different options:
1. If the NFP figure will coincide with the forecast of 164 thousand., Unemployment will remain at 5.0% and the previous performance will be slightly revised (no matter which way), then the euro / dollar and pound / dollar will drop by 20-40 points. These data would regard as positive for the US Federal Reserve.
.. 2. If NFP indicator is higher than the 164 thousand to 30 thousand and more, and the unemployment rate will remain at 5.0% or decrease to 4.9, then the dollar is expected to rise to EUR 60-70 points, the pound - on 100 points.
3. If NFP indicator is below 164 thousand. C revision of previous values to the downside, then the dollar rate is expected to fall against other major currencies in the range of 80 points. There are even a swing in different directions as the 6 May. First, the weakening dollar, then the strengthening.
price fluctuations on values are approximate, because the report contains many indicators: unemployment, the proportion of the workforce, the revision of the level of wages and the previous values. The basis of assumptions on the experience from previous NFP since 2001.
It is important to remember that the more the actual value deviates from the forecast, the greater the market fluctuations. First, market participants react to himself NFP, then the level of unemployment, and only then on the revised values for the last two months.