Forex traders will get July’s non-farm payroll report tomorrow and expectations call for a headline figure of 231,000 new jobs while the unemployment rate is expected to remain unchanged at 6.1%. Many new traders are focused on the headline figure alone which is one of their biggest mistakes when they take a look at the NFP report which often results in bad trades taken and wrong trading decisions made.
The headline often paints the wrong picture and last month’s NFP was a perfect example. The headline figure showed net gains of 288,000, but it came as the US economy lost over 500,000 full-time jobs and created nearly 800,000 temporary part-time jobs. So as far as the economy is concerned June’s report was a disaster and those 288,000 jobs, which may be revised lower tomorrow, will not be able to boost economic activity.
Another wrong measure to take into consideration is the unemployment rate which has been dropping sharply, but again for all the wrong reasons. The unemployment rate has dropped to 6.1%, but the majority of Americans have never left the Great Recession while some may be entering an era of depression in the initial stages. The reason why the unemployment rate is very misleading is due to the fact that an unemployment person who gives up on job search is longer counted as unemployed.
Just because the unemployment rate is decreasing does not mean the Americans are employed; it simply points out that Americans gave up looking for a job after a prolonged time as they do not believe they will find one. More and more full-time positons are being lost and replaced by low quality temporary and part-time jobs. This is a toxic combination especially as consumer debt levels are on the rise.
Wednesday’s ADP report disappointed trades and showed 12,000 fewer jobs created than the 230,000 private sector jobs expected. Forex traders should be prepared for a potential NFP report sub-200,000 tomorrow which should reverse the rally in the US Dollar. Should tomorrow’s NFP report disappoint the EURUSD is expected to rally sharply on high volume.