FX News Trading For The Week Of April 29-And Beyond

The ADP has a poor correlation with the NFP.

Actually, there isn't really a very good correlation with any other reports and I wouldn't use the employment components of the CHI PMI or either ISM and there's a very good reason why-the data in those reports is collected very differently then the way the BLS collects the data.

The BLS only counts jobs that exist during the 7 day period beginning on the 12th for any given month. If a company hires workers at other times, those jobs are counted in the revisions. For example, if a company hires workers between the 1st and the 10th of December, those jobs will not be reflected in the Dec. NFP, they'll be announced as a revision to Dec. NFP with the Jan report. Likewise for workers hired in Dec. after the week of the 12th. So if it turns out that hirings do not occur during the week of the 12th, then for BLS purposes no new jobs will be counted as being created by that company for the month of Dec.

All other reports simply collect end of the month data. If the emplyment component of the ISM shows a net increase for Dec. as compared to Nov. their employment index will register an increase. Only if this jobs were created DURING the week of the 12th will they be counted in the headline number in the NFP.

I agree. The ADP folks haven't had a very good track record with their new report. In fact, if memory serves, the've blown it royally on a few occasions in recent months.

This was part of the e-mail sent to me for this month's ADP report:

"The data is collected for pay periods that can be interpolated to include the week of the 12TH of each month, and processed with statistical methodologies similar to those used by the U.S. Bureau of Labor Statistics to compute employment from its monthly survey of establishments. Due to this processing, this subset is modified to make it indicative of national employment levels; therefore, the resulting employment changes computed for the ADP National Employment Report are not representative of changes in ADP's total base of U.S. business clients.

From today's Forbes report on the ADP:

Even though ADP underestimated employment by 70,000 jobs in March, Dr. Joel Prakken, chairman of Macroeconomic Advisors, the firm that partnered with ADP to produce the report, said in an interview on Wednesday said it was due to a one-time surge in construction employment that took most analyists by surprise. “In our March estimate, we got the increase in service-sector employment and the decline in manufacturing employment right,” he said. Prakken predicted that the Bureau of Labor Statistics estimates were too strong and would be revised down, bringing it in line GDP growth and closer to ADP’s estimates.

The methodology was changed before last month's report and they still got it wrong. We'll see how it goes, but it makes sense that if the report does come out as they say, including a downward revision for March and in combination with the GDP and core PCE reports, financial analyists everywhere will be talking about a Fed rate cut and a weak dollar. If the ADP is wrong, the headline number beats consensus and March is revised up (or even left alone), I doubt we'll see a $2 Pound and a $1.36 Euro anytime soon. Don't forget about the unemployment rate either. The Fed isn't likely to cut unless UE is clearly trending up.

One last opinion on the NFP tomorrow. Facts for this were taken from an article written by John Crudele at the NY Post-he's been right about the NFP several times before.

The BLS uses something they call the birth/death model for estimating jobs. Birth refers to new companies hiring workers. These companies are not surveyed and BLS makes an estimate (guess) on the amount of new companies formed and the number of jobs they create. Same thing in reverse for the death part.

I turns out that the April guestimate is the strongest of the year. In his opinion, the number tomorrow will be strong, although he declines to give a number.

Estimate: 100K NFP
Estimate: 4.6% Unemployment

Personally, I think that the current estimates are at the LOW END that are easily overcome. What I am worried of is the high 180K previous month - which seems to be on the high side subject to "downward revisions".

Previous: 180K NFP
Previous: 4.5% Unemployment


NewsTraderFX, can you explain further what you mean by the BIRTH/DEATH model?


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I read that in April, the easter week factor could cause companies to pause employing new people.
Likewise, in April, housing suck big time. March Housing improved and wth that you'd see the employment from construction went up.

BUT the 2 ISM is the big positive. These both shows increase in Hiring department.

The birth/death model pertains to how the BLS ESTIMATES jobs that are created by new companies and lost by companies that went out of business. These companies are not surveyed, so the numbers are estimated.

While April usually has the highest net gains, there's no correlation between the B/D estimate and the headline number.

The results from today's numbers set up for the $ bear trend to resume. Wall St. is likely to love these numbers, because they'll be looking for a Fed rate cut.

In this enviorment GBP/JPY and EUR/JPY figure to do very well. The intense Yen borrowing should continue, especially as the CHF looks to get more expensive.

Much more will follow over the week end so check back with the new thread as it's posted.

An Update on my short $ positions taken after the Chinese tariffs were announced on March 30. USD/JPY was changed to a long 3 weeks ago due to the carry trade effect.

GBP/USD 258
EUR/USD 239
USD/CHF 44
USD/JPY 171

Total 612

I'm thinking about an idea for the GBP/USD next week. The BoE is set to raise the rate by 25bp and I don't believe price reflects a full buying-in of that now. I see the GBP/USD moving toward the high from 2 weeks ago leading up to Thursday's announcement so i'm taking some additional lots. What I'm planning to do is to hold the position thru the announcement and here's why:

There is a small (OK, very small) chance that the BoE will raise by 50bp. The bank has pulled some surprises before. Obviously the Pound will soar if that occurs, but what if the BoE only goes 25bp? The Pound likely would get sold off a bit-one of those "buy the rumor, sell the fact" things-but the sell off should not be so rapid that closing will be difficult; There'll be plenty of time to close the position after a 25bp hike without any real damage.

If the bank doesn't raise rates at all (another very small chance), I would think the sell-off would be more rapid, but some good profit will still be there even if the position proves to be more difficult to close.