Why this one event will dominate trading this week

Trading this week's jobs report

With both the pace of economic growth and the Federal Reserve's next move up in the air, traders say that this week's trading will be dominated by the expectations around, and the reaction to, Friday's employment report.

"It's definitely going to be the jobs report that I'm keeping my eye on, and it's too bad we have to wait till Friday, because I think it's going to make for a very choppy week of trading coming up," said Anthony Grisanti of GRZ Energy. "I think that a lot of traders are just going to focus on that, so you'll see volumes very low."

The jobs report is doubly important, because it will not just give investors an estimate of how many jobs were created in October—it will also help determine the Federal Reserve's next move.

In its Wednesday statement, the Federal Open Market Committee said that it would maintain its $85 billion monthly asset-purchasing program, but noted: "The Committee sees the improvement in economic activity and labor market conditions since it began its asset purchase program. ... However, the Committee decided to await more evidence that progress will be sustained before adjusting the pace of its purchases."

(Read more: The market is getting the Fed all wrong: Nomura)

Economists expect to see 125,000 jobs added according to the nonfarm payrolls metric, which would be the second-lowest number of jobs added of 2013. But as the FOMC indicated, if employment growth suddenly gets much stronger, then the Fed is likely to taper sooner rather than later, which could be very damaging for the market.

Traders on the floor of the New York Stock Exchange.
Getty Images

Growth in nonfarm payrolls "is the paramount number the Fed's looking at—therefore it's the paramount number we look at," said Jeff Kilburg of KKM Financial. "If we see 150,000 or 160,000, which is still an anemic number of jobs to add to this economy, I think we go into the talk of that taper coming a little bit closer."

(Read more: I can win both ways on Fed taper prospects: Doll)

Joseph LaVorgna, the chief U.S. economist at Deutsche Bank, agrees that the number will have a great deal of importance.

"In the short term, it will definitely have an impact of investors' expectations of when the Fed will taper," LaVorgna told CNBC.com. "If we get a consensus-like report, the market's only going to be more convinced the Fed isn't doing anything this year on taper."

Yet he worries that the market could be getting a bit too comfortable with weak numbers such as the one he expects to see on Friday (LaVorgna forecasts a nonfarm payrolls number of 130,000).

"The problem is that the minute the data look better, investors will adjust their expectations on the taper again," LaVorgna said, adding, "An argument will continue to be made that the Fed has to taper eventually."

—By CNBC's Alex Rosenberg. Follow him on Twitter: @CNBCAlex.

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