Another day and another round of market-driving data is to be expected, chief among which the all-important US Non-Farm Payroll figures. The forecasts point to a 202K April print, which would be a downgrade from the previous month’s 215K print – but nevertheless in line with market expectations, and suggesting that the US economy is still hiring substantially.
This is data that, more than anything, will be seen by markets as an indication of how the Fed will move in the coming months. With conflicting signs once again coming out, two Fed members have, in the recent days, openly stated that a June rate hike is a real possibility that the markets are overlooking. Today’s Non-Farm Payroll will bring more elements into this game, being expected to provide more color as to how the USD will move from here.
Also, in the last days US economic data has been suggesting that the largest economy in the world is not too strong, which, with a supposedly data-dependent Fed, leads the market to believe that no rate hike is coming soon.
Making a Profitable Non-Farm Payroll Trade
There are three obvious possible short-term scenarios in which the Non-Farm Payroll prints:
- below 202K, and the USD falls
- in line with the forecasted 202K (possibly a bit above), and the USD makes a timid move up
- substantially above the 202k expectations, and the USD rallies aggressively
In any event, Ridge Capital Markets believes that gains will keep mounting in the USD/EUR, the USD/GBP and the USD/JPY currency pairs. Our belief is based:
- on the extremely weak performance of the Eurozone performance, when compared with the relative resilience of the US economy, which is bullish for the USD/EUR
- on the pressures mounting over the UK due to the ‘Brexit’/‘Bremain’ referendum that is coming, which is bullish for the USD/GBP
- and on the ultimate need of Japan to have a much weaker currency, and on the fact that the recent JPY rally has probably ran its course, which is bullish for the USD/JPY
For these reasons, while we believe that traders should let April’s Non-Farm Payroll figures come out first, we nevertheless recommend that traders have substantial profits to make by going long any of these currency pairs, because we believe that fundamentals are finally coming to bring these currencies to the values where they belong.