Change in NFPs (OCT) (12:30 GMT; 08:30 ET)
Expected: 83K
Previous: 110K

Unemployment Rate (OCT) (12:30 GMT; 08:30 ET)
Expected: 4.7%
Previous: 4.7%

How Will The Markets React?

One of the most market-moving indicators out of the US will be released on Friday, but with the FOMC rate decision and policy statement leaving the forex, fixed income, and equity markets stumbling, the impact of the data could be skewed. The change in US non-farm payrolls for the month of October is anticipated to rise 83,000, down from 110,000 in September. However, this figure is notoriously difficult to handicap, which is why it tends to spark so much price action. Currently, there are risks to both the upside and downside for this release, as the ADP employment change, Challenger job cuts, and the labor component of the ISM manufacturing survey all signal that conditions in the work force were relatively resilient. However, the four-week moving average of initial jobless claims rose to the highest level since April, suggesting that NFPs could prove to be muted, especially amidst massive layoffs in the financial sector. Traders should also watch the unemployment rate, which rose to 4.696 percent in September (rounded to 4.7 percent, officially), towards the top of the Federal Reserve’s forecast of 4.5 – 4.75 percent during the fourth quarter. This figure is anticipated to hold steady at 4.7 percent, but because of the use of the estimated figure, rather substantial changes in the rate may be clouded somewhat. Overall, Treasuries, the US dollar, and the Dow will respond more sharply to a surprising NFP read, as the unemployment rate will likely take a backseat to the headline news.

Bonds – 10-Year Treasury Note Futures

Treasuries bounced from support at 109-28 on Thursday as risk aversion in the markets – also signaled by a plunge in the Dow – sparked demand for the contract. The next major target is the top of the October range at 111-06, but the failure to maintain that level last month suggests that a retest of the level may not be successful either. Risk aversion may remain a driver of Treasury price action, but traders should watch the NFP report, as a weaker-than-expected reading could driver the contract directly to 111-06, while a surprisingly strong figure may send Treasuries back down towards support near 110-00.

FX – EUR/USD

Market-wide weakness in the greenback and a rate cut by the FOMC has allowed EUR/USD to continue its ascent towards 1.4500, though the pair has since backed off to trade in a range of 1.4400 – 1.4475. Neither the Euro or the US dollar trade at extreme levels anymore, allowing further upside potential for the EUR/USD pair. US data on Friday may only highlight weakness in the economy, as the change in non-farm payrolls during October is expected to fall back. However, this particular indicator is revision-prone and rarely hits estimates spot-on, opening up the potential for wild price action upon release. If NFPs drop more than expected, EUR/USD will quickly move higher for another test of 1.4500, with a negative reading possibly giving the pair enough impetus to break through the heavy resistance there. On the other hand, a resilient labor market report that also indicates stronger wage growth could lead EUR/USD to push down to near-term support at 1.4400, with sharper declines targeting 1.4360.

Equities – Dow Jones Industrial Average

The Dow showed a delayed reaction to Wednesday’s FOMC policy statement, which gave indications that the central bank isn’t likely to cut rates again in the near-term. As a result, the equity index plummeted 2.6 percent to close right above the confluence of the 100 SMA and the 38.2 percent fib of 12,517.94 – 14,198.10 at 13,556. Whether the Dow can recoup some of these losses will be partially determined by the release of US non-farm payrolls, as a surprisingly strong or weak figure could help swing equities in one direction. Indeed, a lower-than-expected reading – especially a negative one – could push the Dow through near-term support to test the 50 percent fib at 13,358. On the other hand, other leading indicators suggest that we may see an optimistic labor report, and as a result, the Dow could see at least a brief boost at the market open.

Terri Belkas is a Currency Strategist at FXCM.