US Nonfarm Payrolls – Trading the ‘Beast’ of News Events

The USD has been under pressure lately, with the US Dollar index carving out a series of lower highs and lower lows for roughly the last 55 days. With the US nonfarm payrolls numbers being released later today, volatility in USD pairs is virtually guaranteed. There are other labour market data releases as well, like the unemployment rate, participation rate, etc., which are all released at the same time. There is also a trade balance number to be released.

Now the United States is the only large economy that is currently in the process of tightening the reins. Nevertheless, the dollar is currently trading on the back foot. This sounds strange, as we know that money follows yield. This might be true to a large extent, but remember that no currency will outperform its counterparts on a relative strength basis forever. Of course, the global financial risks and other factors have kept back the FED from aggressively and speedily pursuing tighter monetary policy. When the FED moves slower than the market is expecting, we see that the dollar takes a beating. This has been a factor driving down the USD lately. Look at the US Dollar index below:

US Dollar Index Daily Chart

Yesterday, the USD gained some traction against some of the other major currencies, especially the GBP which was slammed when the BOE surprised the markets by expanding the scope of their asset purchasing program by 60 billion pounds. The same can not be said of their interest rate cut yesterday because this was widely expected by the market.

Of course, there are some currencies that gained against the USD yesterday, like the CAD and AUD.

Now to get back to the NFP event which is scheduled for today at 12:30 GMT; the number is expected to be lower this time around, with expectations sitting at 180 000 new jobs. The previous reading was 287000.

It is very difficult to pre-position yourself for the event, so let’s rather see how we can be prepared to react to the news release. This is of course if you are interested in trading the event, which is contaminated with risk, and laden with reward. Many people don’t like trading news events like this, but each trader has his own trading style, and appetite for risk.

Let’s look at a few currency pairs:

GBP/USD

GBP/USD Hourly Chart

AUD/USD

EUR/USD