How to trade on NFP on September 3?

All eyes are on the US Jobs Report today. The event will likely have a notable impact on the markets, but it will be a little bit tricky, given the fact that we had multiple economic releases over the past few days and weeks, which showed mixed outcomes.

Today's jobs report will give the Fed new information about the employment situation, which is directly linked with the possible QE tapering decision later this year.

Why is NFP tricky this time?

For the past few days/weeks, multiple economic releases disappointed and showed that the US economy might not be as strong as previously believed. The ADP Non-Farm Employment Change came in 50% less than expected, while the jobless claims showed a mild increase. The ISM Manufacturing Employment Component declined for the first time in four months, which has a notable factor in NFP reports.

The trickiness of today's jobs report will be from the unemployment rate and the participation rate. Declining unemployment rate is not always linked to higher employment. Sometimes it is linked to lower participation rate, which pushes the unemployment rate lower.

How to read the data?

First, traders need to look at all the actual data, not only one number. Non-Farm Employment Change, Unemployment Rate, Average Wages, Participation Rate, Manufacturing Payrolls, and Private Payrolls. These are the components of the NFP report. It is not about one single dataset, it's all the above.

Higher readings and higher revisions would be the best scenario to trade, as it will be a one-way bet, just like what happened in last month's report, and this is what the US Dollar needs for now. This would also be welcomed by the Federal Reserve.

On the other hand, a disappointment would be considered as another reason for the Fed to delay tapering. In return, the US Dollar may continue declining, while equities will celebrate the continuation of the current QE.

Finally, mixed data outcome is also possible, this is when we turn our focus to inflation components, including Average Wages, including MoM and YoY. Higher data would keep the estimates for a possible QE tapering before the end of the year. If so, equities might be hit hard ahead of the weekend.

When to place your trades?

The most important thing to do once the data is out, DO NOT react to the initial move. The initial move is always tricky, and it doesn’t mean a continuation or even a trend. Most of the time it’s a short-term play before the trend resumes. Therefore, look at the data first, wait for a pullback/retracement before placing your trades. Here I would like to ask you to watch our previous NFP live coverage on YouTube and watch how we always wait for the trade to come to us rather than chasing the moves.

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