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How to Use Currencies to Trade the Jobs Report

Monday, 1 Oct 2012 | 8:54 AM ET
Photo: Stock4B-RF | Getty Images

This week brings the first post-QE3 payroll report, and this strategist has a currency trading plan.

The Federal Reserve has made clear that it is going to work hard to stimulate the economy with a third round of quantitative easing (QE3). But will it show in the upcoming nonfarm payroll report?

Michelle Meyer, senior economist at Bank of America Merrill Lynch, said the firm is anticipating 90,000 in nonfarm payroll growth, below the consensus forecast, "showing that job growth is still pretty soft." Mayer argued that while consumer confidence numbers are off recent lows, "consumers are still cautious and even more importantly, businesses are still cautious."

Brian Kelly of Shelter Harbor Capital, told CNBC's Melissa Lee that "if you get a really, really bad one, that's going to matter. If you get one that's good, that's not going to matter as much to the currency markets because, well, you know that they're going to step on the gas" and buy risk-sensitive currencies.

Another Jobs Shocker?
Is there a jobs surprise coming? The trade behind next week's jobs report, with CNBC's Melissa Lee and the Money In Motion traders. With Michelle Meyer, BofA Merrill Lynch.

Kelly is positioning for the first outcome, job growth of around 90,000, which he said would be "a really, really bad one." He wants to sell the U.S. dollar against the Mexican peso, since the pair is highly correlated with the S&P 500 stock index. Mexico short-term rates are also at a healthy 4.5 percent.

Kelly recommends entering the trade on a breakout at 12.7900, setting a stop at 12.9000 and a target of 12.5000. For investors who don't want to wait for a breakout, he suggests entering right around current levels, at 12.8400, with a stop at 12.9500.

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MULTI CURRENCIES vs. The Dollarleft/CNBC/Sections/News_And_Analysis/__Story_Inserts/graphics/__ICONS/icon_story_360_TV.gif1505000lefttruehttp://msnbcmedia.msn.comCNBC 360 TVfalse1PfalsefalsefalsefalseCNBC TVTune In: CNBC's "Money in Motion Currency Trading" airs on Fridays at 5:30 p.m. ET 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.

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