In less than 24 hours, we are expecting the non-farm payrolls report for the month
of...

... May. Right now the consensus estimate is for 175,000 jobs to be added to the
economy, compared to 274,000 jobs added the previous month. Yet, the range of
estimates run the gamut of 115k to 240k. April was a great month for job growth,
but such impressive gains will be hard to replicate this time around since we wont
have the benefit of a number of factors that may have overstated the April release
such as the Easter holiday shift, the five week survey period and distortions due to
the Labor Bureau's birth-death model.

According to the FXCM Speculative Sentiment Index released this morning, speculators
in the market are extremely long dollars and short euros. Therefore, since bulls
already have their long dollar positions, a blockbuster 200k plus number should have
a more limited reaction in the EURUSD than a sub-150k number.

Based upon the most recent data that we have received today and over the past few
weeks, 175k will be a tough hurdle to overcome:

Layoffs Rise 42% in May: The latest Challenger report of planned job cuts in May
jumped 42% compared to the previous month with layoffs in the technology sector
increasing eight fold. This follows the sharp dip to five year lows in job
reductions that we saw the previous month. It will be interesting to see if this
shift in trend supports a similar directional change in payrolls. According to John
Challenger, the CEO of the consulting group that releases the report, "with so many
question marks in this economy, employers appear to be in a holding pattern." He
adds that, "more companies are retaining their workers, but they seem reluctant to
add workers." We would not be surprised if this really is true, since the
combination of high input costs, weak European demand and mixed economic data could
entice employers to be a bit more conservative with their hiring plans.

Jobless Claims Coincides With Weaker Payrolls: Including today's jobless claims
report, the four-week average of claims in May is 334k, compared to April's five
week average of 325k. The last 2 times that average claims were approximately 334k,
was back in March (336k) and January (330k), when we saw 146k and 124k non-farm
payroll gains respectively. This suggests that May's jobless claims data should
coincide with a weaker number in payroll growth.

Manufacturing Sector To Shed More Jobs: Given the barrage of weak manufacturing
sector data, it is a near consensus at this point that we should see the third
consecutive month of jobless losses in manufacturing sector. The employment index
of the ISM survey dipped into contractionary territory for the first time in 18
months. Even though non-farm payrolls has managed to register impressive gains
despite weak manufacturing employment, the negative number will definitely drag the
overall NFP number lower.

Yet there may be cause for optimism:

Consumer Confidence Remains Upbeat: Both the Conference Board and the University of
Michigan consumer confidence surveys registered increases in the month May despite
mixed economic data. The "Jobs Are Plentiful" component of the Conference Board's
Consumer Confidence report also rose to 22.6% in May, up from 20.4% in April. In
fact, this was the highest reading in nearly four years.

Construction Sector Employment Expected To Be Strong: Given the strength of the
housing market, construction sector employment is expected to have registered strong
gains in the month of May. Jobs in the sector have increased steadily for the
fourteenth consecutive month through April and according to our friends at Thomson
Financial, construction employment has accounted for slightly less than 20% of the
total job growth that month.

The risk is tilted more towards a downward surprise in payrolls and given the mix of
current speculative positioning, we expect a weak non-farm payrolls number to cause
a sharper reaction in the EURUSD than a strong number would. With everyone already
long dollars, there aren't much more players left to buy dollars and in fact, bears
could be sitting tight and waiting for the results of NFPs to take profits on their
shorts, which would result in a nice contra-trend move.


Kindest Regards,

Kathy Lien
Chief Strategist
Forex Capital Markets LLC
32 Old Slip, 10th Floor
New York, NY 10004
Tel (212) 897-7660
Fax (212) 897-7669
E-mail: klien@fxcm.com


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