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

By , Currency Analyst
07 March 2013 21:00 GMT

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

What’s Expected:

Time of release: 03/08/2013 13:30 GMT, 8:30 EST

Primary Pair Impact: EURUSD

Expected: 163K

Previous: 157K

DailyFX Forecast: 160K to 185K

Why Is This Event Important:

The U.S. economy is expected to add another 163K job in February, and the ongoing improvement in the labor market should prop up the dollar as it dampens the Fed’s scope to expand the balance sheet further. As the world’s largest economy gets on a more sustainable, we should see a growing number of central bank officials adopt a more neutral to hawkish tone for monetary policy, and the FOMC may look to switch gears later this year as the outlook for growth and inflation improves.

Recent Economic Developments

The Upside

Release

Expected

Actual

ADP Employment Change (JAN)

170K

198K

Non-Defense Capital Goods Orders ex Aircrafts (JAN)

0.0%

6.3%

Building Permits (JAN)

1.2%

1.8%

The Downside

Release

Expected

Actual

Gross Domestic Product (Annualized) (QoQ) (4Q P)

0.5%

0.1%

Personal Consumption (4Q P)

2.3%

2.1%

Domestic Vehicle Sales (FEB)

12.00M

11.99M

The rebound in business investments along with the ongoing expansion in building activity certainly bodes well for the U.S. labor market, and we may see a growing number of discouraged workers return to the labor force as the economic recovery gradually gathers pace. However, the recent lull in private sector activity paired with the slowdown in household spending may prompt firms to scale back on hiring, and a dismal development may trigger a sharp selloff in the dollar as the FOMC keeps the door open to expand the balance sheet further.

Potential Price Targets For The Release

Forex_EURUSD-_Trading_the_U.S._Non-Farm_Payrolls_NFP_Report_body_ScreenShot050.png, EUR/USD- Trading the U.S. Non-Farm Payrolls (NFP) Report

Although the European Central Bank interest rate decision propped up the EURUSD, the lack of momentum to push back above the 38.2% Fibonacci retracement from the 2009 high to the 2010 low around 1.3120 reinforces out bearish outlook for the pair as the key figure appears to be providing near-term resistance. In turn, we still anticipate a move back towards the 23.6% Fib around 1.2640-50, and the bullish sentiment surrounding the dollar may gather pace throughout the year amid the shift in the policy outlook.

How To Trade This Event Risk

Forecasts for a faster rate of job growth instills a bullish outlook for the greenback, and a positive print may pave the way for a long U.S. dollar trade as market participants scale back bets for more quantitative easing. Therefore, if NFPs increase 163K or greater in February, we will need to see a red, five-minute candle following the report to establish a sell entry on two-lots of EURUSD. Once these conditions are met, we will set 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 target will be based on discretion, and we will move the stop on the second lot to breakeven once the first trade hits its mark in order to preserve our profits.

In contrast, the slowdown in private consumption paired with the ongoing slack in the real economy may continue to drag on employment, and a dismal labor print may drag on the greenback as it fuels bets for more QE. As a result, if NFPs fall short of market expectations, we will implement the same strategy for a long euro-dollar trade as the short position laid out 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)

JAN 2013

2/01/2013 13:30 GMT

165K

157K

-28

+1

January 2013 U.S. Non-Farm Payrolls

Forex_EURUSD-_Trading_the_U.S._Non-Farm_Payrolls_NFP_Report_body_ScreenShot040.png, EUR/USD- Trading the U.S. Non-Farm Payrolls (NFP) Report

U.S. Non-Farm Payrolls increased another 157K in January after expanding a revised 196K the month prior, while the jobless rate advanced to 7.9% from 7.8% as discouraged workers returned to the labor force. The initial reaction to the employment report was short-lived, with the EURUSD slipping back below the 1.3650 figure, but the dollar struggled to hold its ground throughout the North American trade as the pair ended the day at 1.3637.

--- Written by David Song, Currency Analyst

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

Follow me on Twitter at @DavidJSong

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07 March 2013 21:00 GMT