How to Trade the Payroll Report
By: 
Just in case the sequester isn't enough to roil the currency markets, this week will also bring the payroll report.
Forecasts call for job gains around 160,000 and an unchanged employment rate, but as Italy demonstrated last week, the world is full of surprises.
That's why Amelia Bourdeau, director of foreign exchange at Westpac Institutional Bank, has a playbook for payrolls. If payrolls come in well above forecasts — over 200,000 — she expects risk appetite to increase and recommends buying the British pound against the dollar because the pound "has a correlation with risk seeking."
Conversely, if the figure is less impressive — under 160,000 — she thinks investors will become more risk averse, and she suggests the opposite trade.
Bourdeau expects the second, more disappointing, scenario to play out. So she wants to sell the pound against the dollar, entering the trade at 1.5000 with a stop at 1.5190 and a target of 1.4650.
"I feel pretty confident that the downward trend in sterling is in place," she told CNBC's Melissa Lee.
Brian Kelly of Shelter Harbor Capital is enthusiastic about the trade, pointing out that the pound is also a play on weakness in Europe.
But Andrew Busch, publisher of AndrewBusch.com, has a different idea about the effect of a stronger-than-expected report.
"I would not want to be long sterling. I think you will see the dollar rally significantly because it calls into question whether the Fed continues quantitative easing," he said.
(Read more: CNBC Explains: Quantitative Easing)
Busch suggested watching the market's reaction to whatever comes out and going with that.
Tune In: CNBC's "Money in Motion Currency Trading" airs on Fridays at 5:30 p.m. and repeats on Saturdays at 7 p.m.
Learn more: The essential vocabulary for currency trading is on Key Terms Dictionary.Top currency strategies are broken down for you in Currency Class.
Talk back: Tell us what you want to hear about. Email us at moneyinmotion@cnbc.com.
