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The Monday after payrolls: digesting Friday's move

Non-farm payrolls gets all the attention on Friday. The Monday after is less discussed, but it often has its own character.

If Friday's reaction was big, a lot of positions were opened or closed into the weekend on that move. On Monday, the market has had time to think, read the details, and listen to any weekend commentary. Sometimes that leads to continuation, when the data really changed the outlook. Sometimes it leads to a partial retrace, as people who reacted to the headline take a second look at revisions or wage growth.

What I look at on Monday is where price is relative to Friday's post-release range. If Asia and early London hold near the Friday close, the move is being accepted. If price starts drifting back into the middle of Friday's release candle, the reaction was probably overdone.

Monday is also often light on US data, so there's less to push the dollar either way. That can mean the Friday move just sits there, and setups that need movement don't work well.

I don't have a fixed rule. It's more that I don't assume Friday's direction carries over automatically. I wait for London to show how it's treating Friday before trading the dollar pairs.

Fed speakers on the Monday after payrolls can matter more than usual. If an official comments on the jobs data, it gives the market a read on how policymakers see it, and that can either confirm or undo Friday's move. Checking the speaker schedule for Monday and Tuesday is a good habit after a big payrolls surprise. On a quiet Monday with no speakers, the market mostly drifts, and the more interesting price action might not come until later in the week when the next data arrives. Patience on a Monday like that usually pays off more than forcing an early read.

There's a calendar quirk to be aware of. Payrolls is usually the first Friday of the month, which means the following Monday is often near the start of a new month. Month start flows can add their own noise. It's not dramatic, but if the Monday move doesn't make sense in terms of the jobs data, month start positioning might be part of it. That's one more reason not to read too much into the Monday direction until London has had a proper go at it. Month start flows tend to fade by midweek.

The Monday after payrolls often tests the levels from Friday's move. If the move holds, it can continue. If not, a partial reversal is common as positions are adjusted.

Marking Friday's high and low after the release and watching how price behaves around them on Monday morning can give a clear plan for the day. It also helps to check whether any other news over the weekend changed the picture.

Monday positioning data can help explain the move. The Commitments of Traders report comes out on Friday afternoon US time, but it reflects positions as of Tuesday, so it doesn't include the payrolls reaction. Still, if positioning before payrolls was very one sided and the data went against it, Monday can see more of the unwinding, as funds that didn't adjust on Friday catch up. That's one reason Friday's move sometimes extends on Monday rather than reversing. It's a rough guide but helps explain why some Mondays follow through so strongly.

Is the Monday reaction different when payrolls fell on the last Friday of a month? Sometimes the release date shifts, and then month end flows come into play on top of the data. Funds rebalancing at month end can push currencies in directions that have nothing to do with the jobs data. In those months, Monday might see month end effects mixed with payrolls digestion, making it harder to read. I'd be more careful about drawing conclusions from Monday price action when the two events overlap like that. A note in the journal about the overlap helps when reviewing later.