[TheLFB.com]

Trading the moment of the NFP relaese is hit and miss, trading the momentum of the NFP is a better bet.

The volatility of the 1st Friday of each month that NFP is released is not just down to the number of jobs created, this is a complex release that has four components that Traders must be aware of:

1. The actual number of jobs reported as being created this month; July’s number is expected in at 125k, and is an average of analysts’ figures that range from 300k to 20k. The High to Low difference in opinion is enormous.
2. The revision to the previous month’s number; Probably as important as the new number, the revision can add 50k to the previous amount, and that is what creates the volatility as Traders re-align their previous thoughts on what happened four weeks ago.
3. The Employment Rate; Currently at 4.5% is one of the lowest in the world and has stayed between 4.5-4.6% recently. Any move outside this area would be dramatic
4. Average Hourly Earnings; Looking at coming in around 0.4%, this is the number that the Fed stated was causing it concern as an inflationary read.

Wage increases stoke inflationary pressures and the FOMC members have already said that they are more concerned with inflation than they are the housing market. So, if the NFP prints an increase in jobs, the Revision is at last month’s number (157k) or higher, the Unemployment Rate stays below 4.5% and the Hourly Earnings post at 0.4% as expected, then Traders will have confirmation that the economy is looking robust, inflationary pressures are around and no interest rate decrease is likely from the FED.

A read that comes in at the expected numbers may well strengthen the $ as the weakness in the Greenback recently has come from the fear that the housing sector will drag the manufacture and service industry lower, a positive read on jobs and wage growth will reduce those concerns.

The secondary thought for Friday may come from the fact that the US economy is moving from a period of economic contraction, there are signs that growth is on a solid footing and that expansion could be coming sooner than most thought. Compare the US situation to the Business Cycle of the Major Pairs; UK, Switzerland, Euro Zone, Australia and New Zealand have all gone through a rate hiking cycle, they are at the Peak of their economic expansion and are looking for inflation and growth to slow as a consequence of higher rates. Japan and Canada have got ahead of the US Business Cycle as well.

The scenario of a strong set of numbers tomorrow is that the US may be seen as starting its growth phase just as the others are starting their slow-downs, and that in itself may attract $ Long positions as Institutions look to get in at the beginning of an upwards cycle in the US.

The fly in the ointment is the US housing sector, it is weighing on most analysts minds as they look towards 2008, and some are predicting an interest rate cut to compensate for the sub-prime lending problems that are prevalent now.

The FED will not want to be lowering rates to appease the housing problem if there is any sign of CPI increases and inflation in the economy. It is a fine balancing act, and one that will be made a little easier if the releases tomorrow are strong.

Be very careful Trading the NFP, there are many components to look at, it may be better to find the Support and Resistance well ahead of time, let the explosion of price take place, hold fire, keep the gunpowder dry and let the Market come to you, one way or the other after the first 10-15 minutes. The initial breakouts are invariably retraced, so let the Market show which way it wants to go, check that the $ is running the same way against all of the Major Pairs and be in total control of anything that gets taken.

The Asian Markets are closed by the time NFP is released, they will pick up the baton on Sunday evening, so do not be in a hurry to get involved, if it comes your way then get on board, but do not let the Non Farm Express run you over. Fundamentals can take longer to get into the Markets than Technical moves, so be patient and be careful.

If the numbers miss tomorrow Traders get to see the depth and strength of the $ Bears in wanting to push the currency lower. Whatever happens a clearer picture of US$ sentiment will be available by close of business Friday.