Trading The Non-Farm Payroll Today

It is that time of the month again. The first Friday of a new month when the United States releases its most watched data on their labor market. Today, at 0830 EST, they will release the non-farm payroll (NFP) report. Over the years the NFP has been a prime catalyst for moving the world’s financial markets giving traders an insight into risk trends as well as valuable insight into the Federal Reserve as they get set to initiate monetary policy just a couple weeks later at their Federal Open Markets (FOMC) monetary policy meeting. The NFP also gives traders and analysts an insight into wage growth and inflation as well as the overall health of the world’s largest economy.

As far as monetary policy standings go, the almighty Buck (the US Dollar) is heads-and-shoulders above any other world currency and above its own counterparts like the British Pound or the Japanese yen. The US Federal Reserve (Fed) is the only central bank in the world contemplating raising its main lending rate. All other banks are cutting or contemplating further negative rates and other dovish monetary policy to jumpstart sluggish economies. Right now, thanks to this policy, the Fed and the US Dollar maintains a remarkable edge in the Forex and other financial markets. This advantage has been well noted in the US Dollar’s trading range going back to the beginning of 2015. In order to extend the run of the buck, the Fed must enact a substantial upgrade towards rate hike expectations. They must also show an accelerated curve with rate hikes going forward. This is not easy for them to do if you look at recent economic data, which has been sub-par. There is also a lot of risk with the November 2 meeting of the Fed as it is really close to a presidential election.

With that said, risk trends should be easier to navigate with today’s NFP data. There seems to be a lot of risk oriented assets in play like the global benchmark, the S&P 500. There is a waning wedge in this market that traders need to pay attention to. Unless there is knee-jerk reaction today, there could be an unwinding of risk exposure. A weak NFP report could temper trader sentiment and ease expectations of an impending rate hike by the Fed. This would play some havoc with the USD/JPY. In other Forex markets, we would see specific fundamental risks taking priority and driving risk. These markets include the EUR/USD, the GBP/USD, the NZD/USD and the USD/CAD. The sentiment driven AUD/USD could also gain some ground on a poor NFP result.