Update: US Employment Report

(comments to be added)

Coming back with profit!

It was about two weeks that I had no trade. I sold USDJPY at 107.13 after U.S. market close. It was when:

• U.S. Indexes dropped more than 2.5 percent on fear of negative impact from job losses
  Jobless claims rose to 444k, about 15k more than estimates
• ADP Employment Change showed 33K decline which made the market more worry about the Friday's Employment Report
• Improvement in ISM Service index and Non-farm Productivity both overshadowed by negative reading in jobs market

I bet on continuing negative sentiment ahead of tomorrow's Employment Report, but the position resulted in 47 profit very soon when it automatically closed at 106.65 as early as the New Zealand market's open.

Good decision made 40 pip profit

Considering the background, I also bought AUDUSD expecting that interest rate differential would be in favor of Aussie. But I changed the decision and replaced it by selling GBPJPY when I found it in an appropriate price:

• Oil price was dropping in response to the GDP and possibility of sharp slowing in economic activity and reduced demand. So the price of gold was also dropping in response to Oil and Euro.
• Some economic data was ahead, especially German Retail Sales that could show the economic activity is increasingly slowing in euro-area, and it was likely to accelerate the commodity-selling in response.

All of these reasons in addition to technical data made me convinced to close the position in 15 pip loss and time showed that it was a correct decision.

30 pip profit from the first position

I sold USDJPY yesterday, at 107.96 in about 4 hours before US markets close. It was when the GDP had been reported and dollar temporarily was strengthened thanks to dropping oil prices which itself was in response to possibility of lower demand.

The position automatically closed at 107.66. About 7 hours left to US Employment Report and I would prefer to reduce the size instead of closing it but if I had more flexibility. (background of this trade)

GDP, Oil, and Unemployment; Demand & Supply battle

Second quarter's GDP missed estimates when in Q4 (2007) revised to negative, and jobless claims climbed by 44K to 448000 which is usually considered a recessionary number. It is at the time that Employment Report, which is scheduled for tomorrow, may show that the economy lost jobs for seventh consecutive months.

The reaction to the report was interesting. Oil price dropped after earlier jump betting that the slowing economy would decrease demand. It helped dollar to pare its sharp losses against other major currencies. However, from the supply/demand perspective, it looks a little complicated for the dollar:

• From the demand side: Some economic data on Friday may show more weakness in euro-area. German Retail Sales may attract more attention which in expected to be declined in June. Oil price may extend its decline in response to any depreciation of Euro and such process could increase demand for dollar.
• From the supply side: It seems reasonable to expect that the current situation could bring more challenge for the greenback. Considering the increasingly deteriorated job market, the prospect for rising interest rate would be completely uncertain.

I think that taking a position ahead of tomorrow's US Employment Report could be a more difficult balancing act; so it would be necessary to be more cautious about technical data.

US Employment Report; Could ADP be a trigger?

I still think that the Friday's Employment Report is the most important data for the week. The ADP Employment Change is ahead which is considered as an early estimate for the official report.

It would be easier to sell dollar if today's better-than-expected Consumer Confidence didn't affect the market so positively. Crude oil dropped almost 3 $/b when euro depreciate one percent against the greenback.

Should oil drop below 120 it would be very supportive to the dollar. It may happen if the Petroleum Status report shows another increase tomorrow. However I see that price unlikely.

So I just wait until technical data suggest that the balance is going to change against the dollar and then there would be options for taking position.

US Unemployment vs. ECB Rate Expectation

Initial jobless claims passed 400K, which is usually a number in recessionary periods. Unemployment rate stands at 5.5 percent in June, after biggest jump in almost two decades in May.

However, the negative reaction to the dollar was limited, probably because the data was overshadowed by the market expectation on the future of interest rates in Europe; it is expected that the ECB is not in a position to raise its benchmark again, after raising it today.

(this post has been added later)

US unemployment, 0.4 more than estimates, but "in line with forecasts"

Increase in teenagers' unemployment expanded the job pool which apparently is the main source of unexpected jump in the headline. Economists believe that some of the increase may come from Commerce Department's difficulty in seasonal adjustment, considering earlier end to school year.

Bloomberg said: "Lehman Brothers Holdings Inc. economists estimated the unemployment rate may drop back by 0.1 or 0.2 percentage point in June because of the seasonal-adjustment effect. David Resler, chief economist at Nomura Securities International in New York, said the May rate was as much as 0.3 percentage point higher because of the school-year impact."

The rise in unemployment "was in line with forecasts,'' James Bullard, Federal Reserve Bank of St. Louis said yesterday.

From the policy maker's perspective, when they express concerns about inflation, I think they have incorporated the unemployment rise in their calculations.

When experience matters

Change in payrolls was less than anticipated, -49k when the median forecast was -60k, but the unemployment headline looks shocking, jumped to 5.5%, well above 5.1% which was expected.

I see the data mixed (to me). I have no idea or experience about the possible reaction. It is the first time that I see a significant gap between the two numbers, so I prefer to stay in sideline.

I closed my position (short on usdjpy), at 105.78, taking just 29 pips profit. It is Friday and I have no plan for another trade.

Lowering risk

Buy Limit order is triggered on GBPUSD at 1.9552 automatically, but I decided to close it now, with 8 pips loss. Reasons behind the decision:

1. Charts and indicators don't show any strength in GBP or even EUR.
2. Only 2 hours is left to the Employment report and I prefer to have it first.
3. Other position, selling USDJPY, is in 11 pips loss, so it is appropriate to decrease systematic risk.
   

US Employment Situation Report

Should the Employment Situation report come better than expected it could make an opportunity to buy higher yielding currencies, such as AUD or GBP.

Before the report, which is scheduled tomorrow, it is likely that dollar lose ground.

I have placed Buy Limit order for GBPUSD at 1.9552 (on pivot line), targeting first resistance and expiring before the release.