|

How are you going to play nonfarms payrolls? - Nomura

Analysts at Nomura explained that even if a strong report is anticipated, the risk reward lies in short USD positions.

Key Quotes:

"As investors’ expectations for NFP have likely risen, even if the number comes in above the consensus 180k headline change and also 0.3% m-o-m, it’s unlikely to be a Gamma event that sees a continued follow-through alone whilst the knee-jerk reaction would be good for the USD. 

Key Quotes:

"The risk reward lies in short USD positions as investors’ expectations for NFP have likely risen, even if the number comes in above the consensus 180k headline change and also 0.3% m-o-m, it’s unlikely to be a Gamma event that sees a continued follow-through alone whilst the knee-jerk reaction would be good for the USD. 

"On the flipside, given the bar has been set quite high to meet the elevated market expectations, the numbers this month could more easily disappoint. After what was two months of temporary boosts from warmer weather, this could dampen the employment gains in March, while the Fed may see the slowdown as transitory. Or to put it another way, even if the numbers come in line with consensus, it would likely be a disappointment versus the market skew and have a more pronounced reaction. \

So if you are long gamma over the event, having downside strikes in USD/JPY or upside in EUR/USD makes more sense in our view from a risk reward perspective, given the market’s strong optimism. Our sensitivity analysis also shows that AUD/JPY vulnerability can continue if we have a combination of negative NFP surprises and positive earnings surprises, while the opposite (strong NFP with weaker earning) can support the crosses."

Author

Ross J Burland

Ross J Burland, born in England, UK, is a sportsman at heart. He played Rugby and Judo for his county, Kent and the South East of England Rugby team.

More from Ross J Burland
Share:

Editor's Picks

EUR/USD onsolidates around mid-1.1800s as traders keenly await FOMC Minutes

The EUR/USD pair struggles to capitalize on the previous day's goodish rebound from the 1.1800 neighborhood, or a one-and-a-half-week low, and consolidates in a narrow band during the Asian session on Wednesday. Spot prices currently trade just below mid-1.1800s, nearly unchanged for the day.

GBP/USD bounces off lows, retargets 1.3550

After bottoming out just below the 1.3500 yardstick, GBP/USD now gathers some fresh bids and advances to the 1.3530-1.3540 band in the latter part of Tuesday’s session. Cable’s recovery comes as the Greenback surrenders part of its advance, although it keeps the bullish bias well in place for the day.

Gold bounces back toward $4,900, looks to FOMC Minutes

Gold is attempting a bounce from the $4,850 level, having touched a one-week low on Tuesday. Signs of progress in US–Iran talks dented demand for the traditional safe-haven bullion, weighing on Gold in early trades. However, rising bets for more Fed rate cuts keep the US Dollar bulls on the defensive and act as a tailwind for the non-yielding yellow metal. Traders now seem reluctant ahead of the FOMC Minutes, which would offer cues about the Fed's rate-cut path and provide some meaningful impetus.

DeFi could lift crypto market from current bear phase: Bitwise

Bitwise Chief Investment Officer Matt Hougan hinted that the decentralized finance sector could lead the crypto market out of the current bear phase, citing Aave Labs’ latest community proposal as a potential signal of good things to come.

UK jobs market weakens, bolstering rate cut hopes

In the UK, the latest jobs report made for difficult reading. Nonetheless, this represents yet another reminder for the Bank of England that they need to act swiftly given the collapse in inflation expected over the coming months. 

Ripple slides to $1.45 as downside risks surge

Ripple edges lower at the time of writing on Tuesday, from the daily open of $1.48, as headwinds persist across the crypto market. A short-term support is emerging at $1.45, but a buildup of bearish positions could further weaken the derivatives market and prolong the correction.