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Forex: EUR/USD- Trading the U.S. Non-Farm Payrolls (NFP) Report

By , Currency Analyst
06 December 2012 22:35 GMT

Trading the News: U.S. Non-Farm Payrolls

What’s Expected:

Time of release: 12/07/2012 13:30 GMT, 8:30 EST

Primary Pair Impact: EURUSD

Expected: 86K

Previous: 171K

DailyFX Forecast: 75K to 125K

Why Is This Event Important:

U.S. Non-Farm Payrolls are projected to increase 86K in November, and the slowdown in job growth may drag on the dollar as it fuels speculation for additional monetary support. There’s speculation that the Federal Reserve will offset ‘Operation Twist’ as its scheduled to expire in December, and there’s growing bets that the central bank will expand its open-ended asset purchase program beyond the $40B monthly limit as policy makers look for a stronger recovery.

Recent Economic Developments

The Upside

Release

Expected

Actual

Construction Spending (MoM) (OCT)

0.5%

1.4%

Pending Home Sales (MoM) (OCT)

1.0%

5.2%

Consumer Credit (SEP)

$10.175B

$11.365B

The Downside

Release

Expected

Actual

Challenger Job Cuts (YoY) (NOV)

--

34.4%

ADP Employment Change (NOV)

125K

118K

Advance Retail Sales (OCT)

-0.2%

-0.3%

The pickup in building activity along with the budding recovery in the housing market may help to encourage a more robust employment figure, and a positive development may increase the appeal of the U.S. dollar as it dampens the scope of seeing the Fed expand its balance sheet further. However, the increase in planned job along with the slowdown in private sector consumption may drag on job growth, and a dismal NFP print may fuel bets for more quantitative easing as the central bank maintains a rather dovish tone for monetary policy.

Potential Price Targets For The Release

Forex_EURUSD-_Trading_the_U.S._Non-Farm_Payrolls_NFP_Report_body_ScreenShot117.png, Forex: EUR/USD- Trading the U.S. Non-Farm Payrolls (NFP) Report

Indeed, the pullback from the 1.3120 region - the 38.2% Fibonacci retracement from the 2009 high to the 2010 low - should turn into a larger correction as the relative strength index falls back from overbought territory, and the EURUSD may continue to give back the rebound from November (1.2659) as the pair carves out a tripe-top around the key figure. However, if NFPs disappoint, bets for additional monetary support may spark a move back towards 1.3000, and the dollar may trade heavy ahead of the December 12 Fed meeting as the central bank keeps the door open to expand its balance sheet further.

How To Trade This Event Risk

Expectations for a slower rate of job growth certainly instills a bearish outlook for the greenback, but a positive development may pave the way for a long U.S. dollar trade as it raises the fundamental outlook for the world’s largest economy. Therefore, if NFPs top market expectations, we will need a red, five-minute candle following the release to generate a sell entry on two-lots of EURUSD. Once these conditions are fulfilled, we will place the initial stop at the nearby swing high or a reasonable distance from the entry, and this risk will generate our first target. The second objective will be based on discretion, and we will move the stop on the second lot to cost once the first trade hits its mark in an effort to lock-in our profits.

On the other hand, the slowdown in consumption along with the ongoing slack in the real economy may push businesses to scale back on hiring, and a dismal employment report may drag on the dollar as the Fed keeps the door open to expand its balance sheet further. As a result, if the employment increases 86K or less, we will implement the same strategy for a long euro-dollar trade as the short position mentioned above, just in the opposite direction.

Impact that the U.S. Non-Farm Payrolls report has had on USD during the last month

Period

Data Released

Estimate

Actual

Pips Change

(1 Hour post event )

Pips Change

(End of Day post event)

OCT 2012

11/02/2012 12:30 GMT

125K

171K

-31

-49

October 2012 U.S. Non-Farm Payrolls

Forex_EURUSD-_Trading_the_U.S._Non-Farm_Payrolls_NFP_Report_body_ScreenShot116.png, Forex: EUR/USD- Trading the U.S. Non-Farm Payrolls (NFP) Report

The U.S. economy added another 96K jobs in August after expanding a revised 148K the month prior, while the unemployment rate climbed to 7.9% from 7.8% during the same period as discouraged workers returned to the labor force. The better-than-expected print propped up the greenback, with the EURUSD slipping back below the 1.2850 figure, and the reserve currency continued to gain ground throughout the North American trade as the pair closed at 1.2837.

--- Written by David Song, Currency Analyst

To contact David, e-mail dsong@dailyfx.com.

Follow me on Twitter at @DavidJSong

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06 December 2012 22:35 GMT