Prepare for exciting Non Farm Payrolls data!

Investors are placing the spotlight on the next employment evaluation released this Friday June 3 at 12:30 GMT by the US Bureau of Labor Statistics. Non-farm Payrolls is released on the first Friday of every month and expresses the paid jobs added or lost in the US economy excluding the farm sector as agriculture varies throughout the year.      

Why is the NFP report so important? NFP data is highly significant as it provides insights into the country's Labor sector. The employment sector is traditionally considered a sensitive topic as it reflects the health of the US economy. More employed people indicate more economic activity, more demand for goods and services and thus an expanding economy. Increased economic activity is an indication that the world's largest economy is growing. Confidence in hiring and growth has a significant impact on consumer spending. Consumer spending is the main driver of the US economy supporting sectors such as housing, construction, manufacturing and retail sales.

The recent poor US data raised further significance of the NFP report as Federal Reserve officials are looking for strong evidence in order to be convinced that the US economy has entered a self-sustainable recovery. The FOMC policy meeting minutes showed that the Fed officials are considering different exit strategies but there was no indication whether the Federal Reserve is ready to start normalizing its monetary policy. It appears that a strong sign of growth is needed before the Fed decides to exit the loose monetary policy but economic data failed to meet expectations. The US Gross Domestic Product in the first quarter disappointed investors after it was left unchanged at 1.8% while investors were expecting an upward revision of 2.2%. More pressure was placed on the greenback as Initial Jobless Claims rose to 424K while the market was expecting a fall to 400K. Durable Goods Orders plummeted while Pending Home Sales took a tumble in April. In addition, Consumer Confidence declined more than expected in May. To make matters worse, ADP Employment Change revealed that 38 thousand new jobs were created in May while the market was expecting 175 thousand new jobs. The poor data raised concerns over the US economic recovery revealing that the Federal Reserve has a long way to go before tightening its monetary policy.

The Labor Department's Bureau of Labor Statistics revealed a greater than expected figure of 144 thousand new jobs added in April. In contrast, the unemployment rate rose to 9% higher from March's 8.8%. Economists are expecting Friday's NFP data to reveal the creation of 150 thousand new jobs in May and the unemployment rate to retreat to 8.9%. The dollar has been benefiting from safe haven demand during the eurozone debt crisis and a better than expected result may boost investors' risk appetite that could put the safe haven dollar under pressure. In the case of a significantly higher number, the dollar may find support as it may be perceived as an indication of growth. If the NFP shows a lower but close to expectations number then we might witness a fall in the dollar as this may indicate that interest rates will remain at ultra low levels for an extended period of time. In the scenario where significantly poor NFP figures are revealed we expect the dollar to strengthen as risk aversion will spur demand for the safe haven currency.

Prepare to trade the most important indicator of the month and the exciting volatility that can lead to large price swings in currency pairs. We may even see the start of a new trend. It is an excellent time to trade the currency and commodity markets. Enjoy trading and good luck!   

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