6 Feb 2014
Flash: Non Farm Payrolls outcomes to trade - RBS
FXStreet (Guatemala) - Strategists at RBS explained an outperformance in US payrolls, particularly if paired with an upward revision to December payrolls and/or a drop in the unemployment rate, should keep the pressure on EM – we like short USD/ZAR on a very strong print. On a disappointment, a decline in short-term US short-term interest rates and the USD may give a reprieve to Emerging Markets. Softening growth indicators should reinforce the Fed's commitment to providing lower for longer and enhance the credibility of its forward guidance.
Key Quotes:
“Investors may wish to stay away from structurally weak and / or politically stressed nations. With USD/JPY and US rates close to key support levels, we see prospects for USD/JPY to move sharply on both outperformance and underperformance in payrolls”.
“Possibilities and Trades:
+225k and higher – Emerging Markets stress revives as markets reassess the ability of the FOMC to put a dovish spin on employment and unemployment rate. Long USD/CLP
+190K to +225K – Above the consensus and offers some preliminary evidence that the slowdown in December employment was a one-off event. Long USD/JPY
+160K to +190K – With concerns about the weather impacts weighing on expectations and the balance of pre-payrolls employment indicators pointing modestly to the downside, the consensus likely lies in this range. Markets are probably well priced for this result. A positioning clearout and more neutral RBA may keep upside pressure on AUD/NZD.
+100K to +160K – Below the consensus but not weak enough to assume that the trend has shifted – weather related issues may take some of the blame, so the view of the trend of employment growth likely won't shift meaningfully. After the ECB pushed out expectations for additional easing, USD weakness could prompt a further clear-out in EUR shorts. Long EUR/USD, Short USD/JPY
+100K or Lower – Questions about the impact of the weather notwithstanding, a second consecutive disappointment should add to worries that the December report is the start of a new lower trend of employment growth. In the immediate term, EM stress is likely tempered as markets look ahead to Yellen's testimony and, potentially, forward guidance being strengthened. We see the hurdle to alter QE in either direction as still quite high - we would prefer to fade strength in structurally weak EMs. Short USD/ZAR”.
Key Quotes:
“Investors may wish to stay away from structurally weak and / or politically stressed nations. With USD/JPY and US rates close to key support levels, we see prospects for USD/JPY to move sharply on both outperformance and underperformance in payrolls”.
“Possibilities and Trades:
+225k and higher – Emerging Markets stress revives as markets reassess the ability of the FOMC to put a dovish spin on employment and unemployment rate. Long USD/CLP
+190K to +225K – Above the consensus and offers some preliminary evidence that the slowdown in December employment was a one-off event. Long USD/JPY
+160K to +190K – With concerns about the weather impacts weighing on expectations and the balance of pre-payrolls employment indicators pointing modestly to the downside, the consensus likely lies in this range. Markets are probably well priced for this result. A positioning clearout and more neutral RBA may keep upside pressure on AUD/NZD.
+100K to +160K – Below the consensus but not weak enough to assume that the trend has shifted – weather related issues may take some of the blame, so the view of the trend of employment growth likely won't shift meaningfully. After the ECB pushed out expectations for additional easing, USD weakness could prompt a further clear-out in EUR shorts. Long EUR/USD, Short USD/JPY
+100K or Lower – Questions about the impact of the weather notwithstanding, a second consecutive disappointment should add to worries that the December report is the start of a new lower trend of employment growth. In the immediate term, EM stress is likely tempered as markets look ahead to Yellen's testimony and, potentially, forward guidance being strengthened. We see the hurdle to alter QE in either direction as still quite high - we would prefer to fade strength in structurally weak EMs. Short USD/ZAR”.