NFP FRIDAY: Your Visual Guide

NFP FRIDAY: Your Visual Guide

Following the ECB rate decision yesterday the markets focus has now shifted to US unemployment data. With many expecting a disappointing release due to soft data being blamed on adverse weather conditions, has the market already priced this in the disappointment?

SUMMARY:

NFP deviations of +/- 60k are required to create more substantial and meaningful moves
Bullish USD requires NFP at 210k or more with unemployment unchanged at 6.6% or less
Money would flow out of safe heavens such as JPY, EUR, CHF and Gold and into USD and equities
Bearish USD requires NFP at 90k or less with unemployment at 6.7% or above
Money would flow out of USD and Equities into safe heavens such as JPY, EUR, CHF and Gold.
AUDUSD rate would be dictated mainly by the strength or weakness of the USD
Adverse weather and softer numbers from US is likely to create disappointing employment data; Goldman Sachs have revised their forecast to 125k
Weak data brings back into question Bernanke's decision to taper


MARCH UNEMPLYMENT CONSENSUS: Stable at 6.6%

Unemployment has been reducing steadily since the peak in 2009 with the last 3 releases coming in less than their 6-month average. As this is within an established downtrend the market is getting used to reducing unemployment, so a larger surprise would be if we see an adverse increase in unemployment.



UNEMPLOYMENT DIFFERENTIAL (Actual - Consensus)

A positive reading denotes the release came in above expectations (and unemployment is falling), whereas a negative number denotes we came in less than expected (and rising unemployment. Typically se wee deviations between 0.1 and 0.2, so a deviation at 0.3 and over from 6.6% expected would have significantly more impact upon the markets and more likely to see substantial and sustained movements. This would require unemployment to come in at 7% or 6.4%, and seeing as unemployment is within a downtrend a rising unemployment could potentially create more of a negative impact to the markets than a positive release would



MARCH Nonfarms Payroll Consensus: 150k Jobs Created

The past two releases have been disappointing to say the least, with January's release being the lowest job creation in 18 months, followed by February’s release (whilst an improvement) being the lowest in 6 months.

However it should also be noted that whilst the markets were expecting more, the data suggests jobs are still being created despite adverse weather conditions.



NFP DIFFERTIAL (Consensus - Expected)

A positive reading denotes the release came in above expectations, whereas a negative number denotes we came in less than expected. The past 2 releases came in less than expected, so a 3rd disappointing figure will again bring back in question whether Bernanke's decision to taper was a good move, or not.

By looking at this raw data we can more easily quantify a meaningful move from a 'flash in the pan'. I estimate we need to see deviations of +/- 60k from consensus to see a more sustained and meaningful move across the market. This would NFP to come in below 90k or above 210 against the 150k expected.



FREQUENCY DISTRIBUTION OF DIFFERENTIAL

Taking the data form the previous chart I have created a frequency chart to show how many times a particular differential has appeared, rounded off to the nearest 20k.

From this we can denote:

Typically we witness differentials between -40k to +40k (46.4%)
Differential above/below 60k is more meaningful and occurs less than 1/3rd of the time
Differentials above/below 100k only occur around 10% of time the but are more substantial to the markets reaction


NFP 210k+ with Unemployment Below 6.7%:

USD and US Indices would be bullish with a weakening JPY, CHF and EUR.
USDJPY to hold above 102.8 and test 103.4 and potentially 103.8 resistance
AUDUSD to stay below 0.908 swing high and target
NFP 90k- with Unemployment above 6.7% and over:

USD bearish with strength in USD, CHF and Gold, Equities to become bearish
USDJPY break below 102.8 support and possibly 102.0
AUDUSD to break above 0.908
NFP between 100k and 200k with unemployment fixed at 6.7%

Choppy trading conditions but likely to be a continued weakness to USD if below 150k expected.
Equities to hold onto their recent highs
AUDUSD to close above 0.90 for the week and await Chinese Data of the weekend for further guidance