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ORBEX

Special Report NFP Trading Guide 5 TH

Of September

ORBEX Research Department

Yesterday; we had a full busy calendar and a major changes in monetary policies

which are implemented by several central banks of the developed economies to

stabilize price, support growth, & putting downside pressure on employment rate

(Central Banks main rules). BoJ ( Bank of Japan ) ,Bank of England ,& ECB ( The

European Central Bank) all of them has announced their economy’s conditions

and forecast , However , Two of them kept their monetary policy unchanged and

ECB has started a new and huge wave of pure QE.

BoJ - Bank of Japan

AS expected; there are no major changes in their monetary policy, Almost it is

considered identical to the previous statements. The recent data of the Japanese

economy was pointing to negative performance, however, still the Bank staff

projects that Japan is continuing its slight recovery trend. The interest rate left at

0.1% and an annual ¥ 50 Trillion asset purchase program (To buy: JGBs,

commercial papers, real estate investment fun – Local, and exchange traded

fund. The bank would continue its asset purchase program till the inflation rate

reaches 2% excluding their sales tax (VAT) increase for the last April and the

coming increase as well, which we do expect would be on the beginning of 2016.

Also, we do believe the program would go after the inflation target is achieved

because their policy to keep downside pressure on long-term rate (for their

public debt- almost double of their ¥ 5 trillion economy in debt). The Japanese

people have lost a lot of their income purchasing power because the increase in

inflation is more than their wage increase rate and the ¥ depreciation.

Japan 2014 2015 2016

GDP Growth 1.40% 1.20% 0.85%

Unemployment rate 3.60% 3.60% 4.05%

Inflation Rate 2.80% 1.80% 1.90%

Special Report NFP Trading Guide 5 TH Of September

So; as shown the below chart, we do figuring out some correlation and market reaction to

some reading .Would you get the big picture, as well?

Japan unemployment (Green) – USDJPY (Yellow) – Japan Inflation (Blue)

Special Report NFP Trading Guide 5 TH Of September

The Bank of England

The official rate at 0.5% and £375 billion in asset purchase program.

The recent economic reading for the UK was positive (GDP Growth –

Unemployment Rate and Wage Increase - Inflation which is the price

stability goal) and the forecast of their future performance pointing

also to a positive condition for the economy. These give us a reason to

believe that the Central Bank of England would be the first to tighten

their monetary policy among the advanced economies – which it the

end of this year or the beginning of the coming year.

Lately, the £ failed to recover in the market, it is not because of the

higher demand for $. There is an Scotland independent talks going on

over there , Moreover , the market taking the lobbying and the voting

for independent ( even it is not considerable difference between who

support independent and who do not ) in a negative way and worried

it which leads to spike the volatility for £ and a sell-off mode was

switched on . The Scottish people is effected from the austerity

measure implemented by the government, and they are looking for

getting free from this troubled economy which is loaded we debt as

well (compared to their economy Performance) to live on the welfare

they deserve (Supported with their strong economy performance). So,

any development in this negotiation would have a great negative

effect on £, UK economy, & monetary policy.

UK 2014 2015 2016

GDP Growth 3.10% 2.60% 2.50%

Unemployment rate

6.50% 6.00% 5.90%

Inflation Rate 1.70% 1.90% 2.00%

So; as shown the below chart, we do figuring out some correlation and market reaction to

some reading .Would you get the big picture, as well?

FTSE 100 (Green) – GBPUSD (Yellow) – GDP (Blue)- UK industrial Production (Pink)

Special Report NFP Trading Guide 5 TH Of July

ECB – Central Bank of Europe

On the other side, there is Draghi who took a major move in his bank policy (ECB

monetary policy) to fight the declining economic growth, the higher interest rates

on the money markets for some European economies, and the deflation risk

which is declined to 0.3%. The geopolitical risk, the internal political problems

(the resign of the French PM) because of the governments’ austerity measure to

make reforms for their economy to reduce its deficit and decrease its public debt,

and the fear to repeat Japanese deflation scenario which continued for a decade

(thanks for abe-conomics decisions) , Make the ECB council to take more serious

steps as follows :

1. A Decrease the refi rate once again by 10bp ( basic points ) to 0.05% which is considered

a historical low – and also using all what can be done with the rate because any further

decrease on this rate would not have any more positive effect on the market , as it is at

the lower band as mentioned by Draghi also yesterday.

2. A negative deposit rate for the banks -0.20% ; to pressure to the banks not keeping the

money and provide a liquidity channel for the economy to motivates loan for corporate

and consumption which would have a positive upward pressure for the inflation .

3. TLTRO – a measure which is mentioned last meeting –which will be conducted on the

mid-Sept. ; this program would provide really cheap € to the economy ( Lending at

0.15% - refi rate plus 20bp spreads , for 4 years maturity ) . We do believe the program

would have a considerable demand, despite of the refi rate at almost 0s levels but the

maturity of that program is favorable .This also would help depreciation of the € , which

in return would release the tensions on the financial conditions and boost exports.

4. ECB will buy Asset Backed Securities (ABS which will include RMBS) and a

3rd covered Bond Program. Draghi is looking to expand the bank’s balance

sheet to 2012 levels.

All the previous mentioned non-standard measures will contribute to ECB forward

guidance: aiming at easing the credit condition in the real economy, downward pressure

on exchange rate; increase internal consumption, offside the negative effect on the

austerity measure, limits the uncertainty of the geopolitical risk and external low

demand, keeping interest rate at low levels, fighting deflation risks and boost growth.

Finally, ECB mentioned they still have unconventional measure in case it is needed,

which means they still have in their bags and markets will look to have it as well!

Europe 2014 2015 2016

GDP Growth 1.00% 1.50% 1.60%

Unemployment rate

11.60% 11.30% 10.90%

Inflation Rate 0.60% 1.15% 1.50%

So; as shown the below chart, we do figuring out some correlation and market reaction to

some reading .Would you get the big picture, as well?

EURUSD (Green) – CPI (Yellow) – Refi Rate (Blue)

Special Report NFP Trading Guide 5 TH Of September

Non-Farm Payroll - NFP

Today afternoon, we are awaiting the NFP (non-farm Payroll) reading

with 226k jobs are expected the economy to add and the previous

reading was 209K jobs. Recently; the American economy is giving a

positive numbers in PMIs reading, Industrial and personal

consumption, housing, and an upside revision of the prelim GDP at 4%

levels. All this data gives the market a good reading to build a long

position for $ and sideways pressure for the commodities.

The services sectors which considered to be the biggest sector for US employment has recorded a negative reading , which we do expect would have an impact on today numbers. However, what is more important than the headline numbers is the details of the unemployment rate. Participation rate as example; recently the decline of the unemployment rate would mainly because of positive development it is because of the numbers of the people who is seeking for work reduced. A hypotheses calculations suggest that if the participation rate was as it its before economic crisis we would see the unemployment rate higher than 10% .All this means we need to dig in data in more details ; Janet Yelled is specialized in employment. She mentioned previously about a dashboard she is monitoring for more details look (participation rate; NFP; Wage increase rate …etc.) this dashboard even The Fed monitoring it as an indicator for changing in the monetary policy and increasing the rate.

USA 2014 2015 2016

GDP Growth 2.00% 3.00% 2.90%

Unemployment Rate

6.20% 5.70% 5.40%

Inflation Rate 2.00% 2.20% 2.20%

So; as shown the below chart, we do figuring out some correlation and market reaction to

some reading .Would you get the big picture, as well?

Dow Jones (Green) – NFP (Yellow) – XAUUSD (Blue) – Participation rate (Pink)

Yellen Dashboard – Source: Bloomberg

Technical Overview

What is the previous effect of that reading?

Looking at the charts below for GBP/USD we would see that the demand

for $ increased once the market recorded an 209K jobs

GBP/USD – 15 min.

XAUUSD; as shown has the same negative correlation – Increases in NFP

reading with declining prices of gold.

XAU/USD – 15 min.

Finally, so as when in previous charts; the negative correlation between the

numbers and market prices: Positive reading – we do expect as well a

reading above 200K shield – a declining prices for GBPUSD and XAUUSD ; as

demand for $ increases in turn. The opposite is correct: A negative reading

compared to the previous or the expected; would have a positive effect on

the GBPUSD and XAUUSD and increases in the demand and their prices –

That is the less probable scenario.

Prepare by,

Mohamed Zidan

Chief Financial Market Strategist

For Further Information: m.zidan@orbex.com

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