Overall market volatility has slowed this week, as forex traders wait for the next main market moving event. As is often the case, this event will be seen with the US Non Farm Payrolls data released on Friday. The report is a measure of the number of jobs created this month in the US economy, and we have some early conflicting data that suggests that the final number could pose some surprises for traders. Last month, the number came in strongly, showing a rise of 236,000 jobs (well above the historical average).
This strength was match in similar reports around the globe (for example, in the 71,000 job increase in Australia for the same month). This widespread strength stoked investor confidence, brought many stock indices to new highs, and brought sellers to traditionally safe haven currencies. Bull runs can only last so long, however, and we will need to see strength in this month’s data in order to continue these trends and bring a positive close for the week.
Expectations for the Data
The next questions forex traders will need to answer will center on the final results for the next data releases. Early indicators (such as this week’s ISM survey and the ADP private employment report), have come in negatively, and this suggests that the current Payrolls expectations (a rise of 199,000 jobs) might be overly positive. The ADP employment report was also expected to come in near the 200,000 level, and the actual result of 158,000 jobs suggests that we might see a downside disappointment in the next set of figures. If this is the case, expect to see a knee-jerk downside reaction in the US Dollar and significant selling pressure in high yielding currencies (such as the Australian and New Zealand Dollars).
Also important for gauging market reactions will be any downside revisions in the numbers for the previous month. The 236,000 job increase that was seen last month was well above recent averages, so it would not be entirely surprising to see downside revisions to those reports as well. Conversely, any NFP result above expectations will likely send carry trade pairs (such as the GBP/JPY and AUD/JPY) higher. Market volatility is likely to slow late on Thursday, as traders wait for the final results before committing to positions.