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.