NFP Cheat sheet: Five scenarios and the best currencies to trade in each one

Jerome Powell, Chair of the Federal Reserve, will speak after the Non-Farm Payrolls – a speech that makes this NFP a bigger market mover – the last public appearance before the Fed's "blackout period."

Expectations and the score sheet

We will use a point system to determine the value of the outcome.

Economists expect an increase of 158,000 positions in August. Any increase between 140K and 200K may be considered within expectations. The scale is asymmetric as average Non-Farm Payrolls have been higher and ADP's jobs report was upbeat.

• 140-200K is worth 0 points. 
• Below 140K is considered below projections, Resulting in a score of -1.
• Conversely, an increase of 200K would be above expectations with +1

Wages are expected to rise by 3.2% YoY and an increase of 3.1% or 3.3% would be within expectations. 

• 3.1-3.3% – 0 points.
• 3.4% or above – +1.
• 3.0% or below – -1.

Five scenarios

1. 0 points – Everything within expectations – current trend may continue without substantial moves. That means moderate increases for GBP/USD, AUD/USD, and USD/JPY
2. +1 – Good news, but not over the top – US yields may rise and push USD/JPY higher, EUR/USD may drop.
3. +2 – Excellent news for workers but the Fed may be more hawkish – Commodity currencies may be under pressure, with potentially significant falls in AUD/USD and gains in USD/CAD. EUR/USD has room to fall as the ECB is set to move next week.
4. -1 – Disappointing news, but not terrible. The Fed is set to help with rate cuts and help stocks and risk assets – Commodity currencies such as AUD and CAD may gain, while GBP/USD may shoot even higher becoming the big winner. 
5. -2 – Bad news for the US – worse for the rest of the world. The safe-haven Japanese yen is set to be a big winner, and so is gold. 

Always remember to trade with lower leverage as the US jobs report tends to trigger high volatility.