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Research Note: September NFP Outlook
Jacob Oubina, Currency Strategist
Summary outlook: (October 1, 2009) We look for September headline nonfarm payrolls tomorrow (830ET/1230 GMT) to decline by a steeper than expected -205K and the unemployment rate to rise in line with market forecasts to 9.8% from 9.7% prior. Given the reaction this week to lower than expected forward-looking data, we think a similarly negative reaction in risky assets - and positive reaction in USD - will follow any downside surprise to NFP.
Trading Strategy: Risk assets remain vulnerable following a plethora of poor economic reports, the last being a much worse than anticipated ISM manufacturing number. Equities have fallen nearly -2.5% since rallying hard on Monday while EUR/USD has shed about -1.0% on the week thus far. We look for the positive correlation between EUR/USD and stocks to persist and would look to short the pair ahead of the NFP release. The 1.4580 zone looks like a good short-term pivot on the hourly charts and selling between there and hourly down-trendline resistance by 1.4630 makes sense in our view. We would set tight stops near the 200-hour sma currently by 1.4670/75 here. A break below the Kijun line at 1.4511 all the way down to the 1.4450 September breakout zone cannot be ruled out. As such, we would look to trail profits in EUR/USD through 1.4515/00. Precious metals will undoubtedly weaken if the USD comes back better bid on a disappointing NFP number. Here we would look to establish XAU/USD shorts ahead of 1008 hourly trendline resistance and the 1010 nearby highs with stops into 1014. Look to book profits into 995/990 on the follow.
Data Analysis: The data we have in hand suggest nonfarm payrolls will decline by -205K in September, moderating further from a -216K dip the prior month. The consensus is even more optimistic, expecting a -175K result. While payroll declines are likely to continue to slow in coming months, we still expect to see negative prints through year-end. Initial jobless claims resumed their downward trend but remained a very high 548K on a four-week moving average basis - this is only a modest improvement from the 573K rate the prior month. Other indicators suggest no labor market improvement at all. The ISM manufacturing employment component tends to track payrolls quite well and it actually fell to 46.2 in September from 46.4 prior. Perhaps the most compelling of the bunch is the labor differential in the Conference Board's consumer confidence report. This takes the difference between perceptions that jobs are plentiful and those that jobs are scarce and it fell to -43.6 from -40.0 prior and is barely a point off the cycle low. This should continue to put upside pressure on the unemployment rate, which we view as rising to 9.8% from 9.7%. In sum, we view significant downside risks to NFP market expectations.
Disclaimer: The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.
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