Hi, María here. Today I will like to share this great article about how to trade the NFP hope it will help you.

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EURUSD: Trading the NFP

What’s Expected:

Time of release: 02/03/2012 13:30 GMT, 8:30 EST

Primary Pair Impact: EURUSD

Expected: 145K

Previous: 200K

Analysts Forecast:135K to 160K

Why Is This Event Important:

Employment in the world’s largest economy is expected to increase another 145K in January, and the ongoing improvement in the labor market may prop up the U.S. dollar as the data dampens the scope for another round of quantitative easing. As the economic recovery gathers pace, we should see the Federal Reserve continue to soften its dovish tone for monetary policy, and the central bank may endorse a wait-and-see approach throughout 2012 as the risk of a double-dip recession subsides. However, as Fed Chairman Ben Bernanke continues to highlight the ongoing slack within the real economy, the central bank head may keep the door open to expand the balance sheet further, and increased speculation for QE3 will dampen the appeal of the reserve currency as the highly accommodative policy encourages risk-taking behavior.

How To Trade This Event Risk

As U.S. policy makers strive to strengthen the labor market, a positive employment report is likely to dampen expectations for additional monetary support, and the development could pave the way for a long U.S. dollar trade as the fundamental outlook for the world’s largest economy improves. Therefore, if NFPs increase 145K or greater in January, we will need a red, five-minute candle following the release to establish a sell position on two-lots of EUR/USD. Once these conditions are met, we will set the initial stop at the nearby swing high or a reasonable distance from the entry, and this risk will generate our first target. The second objective will be based on discretion, and we will move the stop on the second lot to cost once the first trade reaches its mark in an effort to protect our profits.

In contrast, the slowdown in private sector consumption paired with weakening outlook for global growth may lead business to scale back on hiring, and a dismal employment report could strengthen the case for QE3 as the central bank aims to encourage a sustainable recovery. As a result, if NFPs miss market expectations, we will carry out the same setup for a long euro-dollar trade as the short position laid out above, just in reverse.

Have a great day!

maría

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