Forex Plan For US ADP NFP Employment 09/01/10 - by Henry Liu

ADP or Automatic Data Processing (NASDAQ:ADP) is releasing it’s own estimate for the private sectors of NFP (Nonfarm Payroll). This is high impact release and it’s followed by currency traders as they look for hints on Friday’s NFP official release. Here’s the forecast:

8:15am NY Time US ADP NFP Change Forecast 20K Previous 42K

ACTION: USD/JPY BUY 70K SELL -30K

The Trade Plan
As stated in my last analysis on ADP NFP news, I usually don’t trade it but I use this release for future market trend references. However, I assume that most traders are likely to do the same, but if the deviation of 50K is actually hit, true speculators will probably have not problem jumping into the market, and this will undoubtedly change market perception for Friday’s NFP release; therefore it is best to be around your computer during the release time rather than finding out what happened hours later and perhaps missed the entire movement.

With the above being said, if we get 70K or better release, I’d be looking to BUY USD/JPY; if we get a -30K or worse, then I’d be looking to SELL USD/JPY… I’ll look at how close we are to the 84.00 level as it has been considered a strong support for the pair and in order for us to take a SELL trade, we need to see market break beyond 83.50 level.

The Market
With NFP private jobs forecasted at +47K, or a decrease from last month’s figure of 71K, this ADP release’s range is between +17K to +30K, which averages out at around 20K.

With the current market focus on risk aversion, which is exacerbated by the ever increasing unemployment rate and job losses in the U.S., a better than expected release should change the overall perception of the NFP release on Friday and we should see some unwinding of JPY long trades.

Additional Thoughts
The ADP NFP Employment Release is aways considered as a high impact release because ADP is the largest private payroll processing provider in the U.S., traders in general pay more attention to this release, especially during NFP week. ADP usually releases its version of Non-Farm Payroll numbers before the actual NFP based on it’s proprietary private payroll data.

I’ll use caution when trading this release even if we get our deviation. When it comes to NFP, market always exaggerates.

Pre-news Consideration
ADP is expected to show a modest gain of 20K, but with Census hiring skewing the overall picture (still 200K workers need to be fired), private data such as the ADP may not move the market much… However, if we do get a strong release, we could expect some change in the pre-news expectation for NFP on Friday.

There should not be much pre-news trading opportunities for this release. General market trend is still for leaning towards risk aversion, although I am seeing some sign of rebound.