NFP Preview: Polls, Claims and Skews
It’s non-farm payrolls day again. Traders will recall that the 103,000 NFP rise in March underwhelmed in comparison to what pre-release polls were predicting. Traders may wish to keep an eye out today for any revisions to that 103k figure. As for expectations of the April number, a poll of economists by Reuters is looking for an NFP increase of 192,000 in April while the consensus view on average hourly earnings is for a month-on-month increase of 0.2 per cent, 2.7 per cent year-on-year. Although there’s no guaranteed link between the NFP figure and weekly initial claims, traders might wish to bear in mind that the Reuters poll would have been taken before Thursday’s release of initial claims data that showed the four-week moving average of initial claims, which helps to iron out week-by-week volatility, dropped 7,750 to 221,500 last week, its lowest level since March 1973. It’s also worth bearing in mind that, as of Wednesday’s Fed decision, traders know that the US central bank believes “labour market conditions will remain strong.”
On that basis, while a sub-forecast NFP figure tomorrow might cause some immediate market volatility, it’s unlikely to trouble the Fed who will be looking at the stock of data and not individual numbers in isolation. As regards positioning, and traders will ponder this as they gauge how the market will respond to various outcomes, while the EURUSD stabilized on Thursday in Europe it didn’t catch a bid. IFR noted on Thursday that in the foreign exchange options market “EUR puts/USD calls” stayed bid on risk reversals reflecting “downside fears since the 1.20 break.” Traders will have their own views but could it be that the currency market feels that there remains a large ‘trapped’ long EURUSD position which will have a material effect on the post-data price action, irrespective of what the NFP number happens to be? That might go some way to explaining the skew in the risk reversals highlighted by IFR.
Written by Neal Kimberley, External Currency Analyst.