Today is the first Friday of the trading month, and traders and investors around the world are waiting for the Non-Farm Payrolls (NFP) report to be released in the United States. If there is one report a trader needs to be aware of, this is the one. 

In a few hours from now, we will find out if the United States labor market reverses the trend from December, when it lost over 100k jobs, or not. Today’s report is particularly important because financial markets trade in an unusual divergence not seen for more than a year now. More precisely, both the stock market and the dollar are higher. Should the NFP beat expectations – will they both continue their race and squeeze shorts even more? This is what is at stake in today’s report.

Can the February NFP Report Deliver a Positive Surprise?

Every piece of data related to the jobs market released this week points to a positive surprise in today’s report. First, the employment component in both the ISM Manufacturing and Non-Manufacturing shows growing employment for both the services and the manufacturing sectors.

Second, the ADP or private payrolls released on Wednesday delivered a double-positive as well. On the one hand, the private sector added 100k more jobs than the market expected – 173k on 70k expected. On the other hand, the December data, which revealed that the private sector lost jobs, was revised higher, further fueling the positive sentiment.

Third, the decline in the number of continuing claims is another positive for the labor market, as it comes to reinforce the first two points made above. All in all, the NFP may easily surprise to the upside – the question is by how much and how will the markets react?

Stocks are poised to continue their rally on better than expected NFP data. The bigger the surprise, the stronger the rally should be.

The big question is what the dollar will do? On the NFP release, the initial reaction belongs to trading algorithms that automatically buy or sell the dollar based on how much the actual number differs from the forecast. Should the initial reaction be strong enough to trigger weak stops, we may see a sharp move in the dollar as well.

As for the direction, up or down, we will find out in a few hours from now. One thing is for sure – volatility will increase.