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Heading towards NFP next week - Key insights - BAML

FXStreet (Mumbai) - Analysts at BAML enlist few observations potentially useful for trading future NFP events based on regression analysis.

Key Quotes:

“The market consensus estimate for NFP tends to have an optimistic bias. Since 1997 when estimates started being collected, the consensus has averaged +100k while the initial release has averaged +86k.”

“Furthermore, the release disappoints expectations 56% of the time. Taken together, investors should temper their expectations somewhat for the upcoming report.”

“Our regression analysis also quantifies the expected reaction to different levels of NFP surprises and generates a few observations potentially useful for trading future events.”

“Since 2012: Among liquid G10 pairs EURUSD and USDJPY exhibit consistent reactions to NFP surprises, tending to move 0.7% in favor of the USD for a +100k surprise. Somewhat surprisingly, AUDUSD is the least consistent among G10 USD pairs.”

“USDZAR and gold tend to be the most sensitive overall.”

“Oil and equities have R-squared near zero, suggesting the market is concerned about the growth implications of a December hike. In previous hiking cycles, positive NFP surprises were beneficial for oil and equities as they signaled economic expansion.”

“This time, the concern of higher rates deterring global growth is causing a break from the historical relationship.”

“10y Treasury yields tend to sell off 8bp on +100k surprises.”

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