The Non Farm Payroll Express

The volatility of the 1st Friday of each month that NFP is released is not just down to the number of jobs created, this is a complex release that has four components that Traders must be aware of:

1. The actual number of jobs reported as being created this month, Augusts' number is expected in at 135k, and is an average of analysts’ figures that range from 200k to 60k. The High to Low difference is enormous.

2. The revision to the previous month’s number, Probably as important as the new number, the revision can add 50k to the previous amount, and that is what creates the volatility as Traders re-align their previous thoughts on what happened four weeks ago.

3. Employment Rate, Currently at 4.5% is one of the lowest in the world and has stayed between 4.5-4.6% recently.

4. Average Hourly Earnings,
Looking at coming in around 0.3%, this is the number that the Fed stated was causing it concern as an inflationary read. Wage increases stoke inflationary pressures and the FOMC members have said that they are more concerned with inflation than they are the housing market.

If the NFP prints an increase in jobs, and the Revision stays close to last month’s number (132k) or higher, the Unemployment Rate stays below 4.5% and the Hourly Earnings post at 0.3% as expected, Traders will have confirmation that the economy is looking robust, inflationary pressures are around and no interest rate decrease is likely from the FED. That will likely strengthen the $ as the weakness in the Greenback recently has come from the fear that the housing sector will drag the manufacture and service industry lower; a positive read on jobs and wage growth will reduce those concerns.

The fly in the ointment is the US housing sector, it is weighing on most analyst's minds as they look towards 2008 and some are predicting an interest rate cut to compensate for the sub-prime lending problems that are prevalent now. The FED will not want to be lowering rates to appease the housing problem if there is any sign of CPI increases and inflation in the economy. It is a fine balancing act, one that will be made a little easier if the releases tomorrow are strong.

Be very careful Trading the NFP, there are many components to look at, maybe better to find the Support and Resistance ahead of time, let the explosion of price take place, hold fire, keep the gunpowder dry and let the Market come to you, one way or the other after the first 10-15 minutes. The initial breakouts are always retraced, let the Market show which way it wants to go, check that the $ is running the same way against all of the Major Pairs and be in control of anything that gets taken tomorrow.

The Asian Markets are closed by the time NFP is released, they will pick up the baton on Sunday evening, so do not be in a hurry to get involved, if it comes your way then get on board, but do not be standing on the platform waiting for the Non Farm Express only to see it rush straight past you going down the track in the opposite direction.

Dollar hits 2 ½ months low vs Yen on US sub-prime worries

The sharp fall in oil prices on Tuesday (Brent crude fell $3 per barrel to around $76) shows the lack of support at these high levels. the wobble in prices illustrates the vulnerability of prices when speculative long positions are close to record highs. Analysts continue to expect Brent crude to fall to around $65pb by year-end.

The Bank of Japan is expected to raise interest rates at only a glacial pace this year, posing little threat to the carry trade. But worries that weakness in the US sub-prime mortgage market is spreading to the wider economy could cause a flight from risky assets -- leading to a rush to buy back yen.

The Yen already surged across the board on Tuesday as growing turmoil in U.S. credit markets led investors to bail out of stocks and risky trades financed by borrowing in the Japanese currency.

News and Events:
The sharp fall in oil prices on Tuesday (Brent crude fell $3 per barrel to around $76) shows the lack of support at these high levels. The immediate triggers appear to be linked to two developments involving Iran: signs of progress in talks between Iran and the UN nuclear watchdog agency IAEA, and comments from an Iranian official that OPEC would increase production if required to cap prices.

But whatever the precise reasons, the wobble in prices illustrates the vulnerability of prices when speculative long positions are close to record highs. Analysts continue to expect Brent crude to fall to around $65pb by year-end.

The yen surged across the board on Tuesday as growing turmoil in U.S. credit markets led investors to bail out of stocks and risky trades financed by borrowing in the Japanese currency. The yen rallied sharply as mounting worries about the housing market drove some major U.S. stock indexes down nearly 2 percent by the close. The Dollar also sank to a record low against the Euro. Some analysts said "We're teetering very close to the edge of a carry trade unwind, actual view is that there are reasons to bail out right now".

The yen, the lowest-yielding currency in the industrialized world, has been a popular financing vehicle for speculators investing in higher-yielding assets of countries such as Australia and New Zealand through so-called carry trades. As investors unwound some of those bets, the yen fell about 0.7% against the currencies of both countries on Tuesday.

UsdJpy sank 0.57% to 120.27 yen after touching a two-month low of 120.00. Meanwhile, the EurJpy dropped 0.44% to 166.20. EurUsd jumped to a record high of 1.3852 before settling back at 1.3820 up 0.14% on the day. GbpUsd climbed to a 26-year high 2.0654 before settling back at 2.0610 up 0.09%.

The Bank of Japan is expected to raise interest rates at only a glacial pace this year, posing little threat to the carry trade. But worries that weakness in the US sub-prime mortgage market is spreading to the wider economy could cause a flight from risky assets -- leading to a rush to buy back yen. If problems stemming from the sub-prime market spread to other sectors, foreign demand for U.S. corporate debt -- a major source of financing for the trade deficit -- could waver and further hurt the dollar, some analysts say.

Given the market's sensitivity about the health of the housing market, US existing home sales data due on Wednesday and new homes sales due on Thursday are likely to be major centers of attention this week.

Both precede the first reading of second-quarter US Gross Domestic Product, due on Friday, which will indicate to what extent the economy bounced back from the January-March period, it most sluggish quarter of economic growth in more than four years. The latest plunge lower in the dollar coincided with a report showing Canadian Retail Sales in May had the biggest increase in nearly a decade, pushing the Dollar to a 30-year low against the Canadian dollar of 1.0340. __________________

Japanese Yen and US Dollar Rally on Dow Tumbles, Later Stabilization to Boost Carry Trade

The Japanese Yen continued to rally higher against its higher yielding counterparts, as continued tumbles in the Dow Jones Industrial Average led to pronounced carry trade liquidation. The US dollar also had a strong day of gains, matching its largest intraday advance in six months. A flight to safety across the board led to continued volatility across all asset classes, with especially pronounced moves in interest rate and stock markets.

Euro traders saw the single currency lose another 140 points against the Japanese Yen, leaving the EURJPY at its worst peak-to-trough drawdown since March. The high-yielding British Pound was likewise among the worst performers as it shed an incredible 250 points to ¥240.56. Finally, US dollar traders saw the greenback remain relatively stable against its Japanese counterpart, adding a minimal 6 points to ¥118.77 through time of writing.

A positive surprise in US Gross Domestic Product data lent the dollar support through early morning trade, with continued flight to safety leaving the greenback higher on the New York afternoon. The US economy grew at a faster pace than expected through the second quarter of the year, registering a 3.4 percent annualized expansion versus 3.2 percent expected. The attached Price Index was slightly subdued, however, adding weight to the argument that inflationary pressures are receding in the world's largest economy.

The result shows that the economy posted a strong recovery from the first quarter's dismal 0.6 percent annualized rate, with a sizeable improvement in the Trade balance and Government Consumption spurring a jump in GDP. Yet not everything is rosy on the release; Personal Consumption fell to a 2.7 percent annualized pace, worse than the 3.4 percent expected and considerably below the 4.2 percent clip seen in the first quarter. The net implications of the report are arguably mixed, but such a strong rebound in headline GDP rates nonetheless quelled fears of a continued US economic slowdown.

Strong GDP rates were unable to hold back equity market tumbles. Continued risk aversion led the Dow Jones Industrial Average another 94 points off to 13,379 by 17:34 GMT. Losses were actually worse earlier in the day, but bears were unable to drive the closely-followed index beyond yesterday?s panic-lows. The S&P 500 posted a similar 0.71 percent decline to 1,472, while the tech-heavy NASDAQ Composite had the largest percentage drop at 0.86 to 2,577. Continued gains in corporate bond yields and overall credit concerns brought financial shares lower, while speculators cut back expectations of mergers and acquisitions for the same reasons.

Fixed income markets showed small gains on the session, sending yields further from their recent highs. The benchmark 10-year note inched up 3/32 points to 97 and 7/8, with the yield losing a single basis point 4.77 percent. Treasuries had moved considerably higher in early trade, but a subsequent stabilization may signal a pending turnaround in markets. A bounce in yields would certainly boost the dollar, offering better rates of return to the yield-hungry international investor.

Futures are generally based on contracts, with typical durations of 3 months. Spot, on the other hand, is a two-day cash delivery. While the Futures markets was created to hedge out risks and speculate on future market conditions, Spot was created to allow actual cash deliveries. Spot developed a two-day delivery date in order to give those transporting the actual cash a window of time to receive it.