|
|
 |
 |
|
Research Note: October NFP Outlook
Jacob Oubina, Currency Strategist
Summary: (11/05/09) We look for October headline nonfarm payrolls, coming out tomorrow at 0830EST/ 1330GMT, to decline by a steeper than expected -190K and the unemployment rate to jump to 10.0% from 9.8% currently. Per the price action of the last six NFP releases, we think a similarly negative reaction in risky assets - and positive reaction in USD - will follow any downside surprise to NFP.
Trading Strategy: The robust negative correlation between equity markets and the US dollar is likely to remain intact and thus a worse than anticipated NFP number should see the dollar rally. EUR/USD looks to have put in an hourly double-top just above the 1.49 mark and has failed to extend despite very upbeat economic commentary from ECB President Trichet recently. The neckline for this pattern rests by 1.4810 and the 200-hour moving average lurks just below, near 1.4800 currently. Break below the neckline would suggest a technical measured move towards the 1.4710/00 zone.
Exhibit 1: Potential double-top in EUR/USD should resolve lower
EUR/JPY has also been extremely consistent in terms of the NFP reaction - moving lower on a weaker than expected NFP and vice versa. That cross continues to find selling interest ahead of 135.00 and has an hourly trendline near 135.70 to boot. That looks like an interest zone in which to establish shorts, expecting a weak NFP result. The 133.30/00 should be decent short-term support as well.
Exhibit 2: EUR/JPY should fall sharply if NFP disappoints
Data Analysis
The US employment report is due up tomorrow at 830am ET and is likely to create a stir as usual. The economic data of late has had the thumbprints of the US government all over it and continues to suggest that without major fiscal stimulus, growth would be non-existent. Employment numbers continue to point to an economy under duress and we expect this theme to show through in Friday's NFP report. The market is expecting a -175K drop in October payrolls on the heels of a steeper -263K decline the prior month. We are a touch more pessimistic and are forecasting in a -190K outcome. The weekly claims numbers continue to trend slightly lower and suggest that the pace of job shedding is slowing, but not to the extent the market has priced in. Indeed, continuing claims point to a job market that is still extremely challenging for those that remain unemployed.
Most importantly for consumer confidence will be the headline-grabbing unemployment rate. The indicators we have in hand on this front suggest we could very well see that ominous double-digit print. The market remains optimistic that the rate will only increase to 9.9% from 9.8% previously. However, one of the best leading indicators of the unemployment rate - the Conference Board's jobs plentiful minus jobs hard to get index- sank to a new cycle low of -46.2 in October from -43.4 last month. Moreover, employment indicators in regional manufacturing/services surveys have shown no improvement (despite better headline prints in some cases).
Bottom line is that an improvement in the headline NFP is likely priced in by the market, but a 10% print on the unemployment rate could hurt risk appetite and consumer confidence further. This will come just in time for the holiday shopping season and the dent in confidence this would elicit, coupled with the potential that gasoline pump prices will be closer to $3/gal (as per the stubbornly high $80 oil prices), will send shockwaves throughout the retail sector. The report could prove painful for the risk trade.
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.
|
|
 |
|
