Today’s NFP report is much awaited by the trading community across all trading classes. The US Federal Reserve decided to further taper its economic stimulus program known under the synonym of QE3 by $10 billion down to $45 billion per month. This now marked the fourth consecutive meeting where the Fed tapered by $10 billion each.
First-quarter GDP was reported at 0.1% and barely avoided contraction. The next GDP report may be crucial as the 0.1% gain may be revised down to a 0.1% contraction while second-quarter GDP risks a disappointment as well. The current economic environment may prove extremely challenging for the US Federal Reserve.
Inflation is slowly replacing employment data as the unemployment rate dipped below 7.0%. Today’s NFP report may provide the first very important labor market indicator for the second-quarter. The first-quarter was a rather disappointing quarter. The poor GDP performance and the reduction in economic stimulus coupled with a weak labor market may wreak havoc on the US Dollar.
Wednesday’s ADP report provided a bullish sign for today’s NFP report as private sector job growth came in at 220,400. Initial jobless claims remained below 320,000 for almost the entire month of April and only spike up the last two weeks to 330,000 and 344,000 respectively. Economists’ expectations have not been as high as for April’s NFP report which could add additional volatility in the even there will be a negative surprise.
On average NFP estimates are off by 100,000 jobs and the ADP report is off by 35,000 which adds a wide range of possibilities. Regardless of the outcome the US Dollar is likely to move on high volume in a very volatile manner after the NFP report will be released and forex traders should remain very cautious heading into the release.