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Strong U.S. Non-Farm Payrolls (NFP) to Favor Short EURUSD Setup

By , Currency Analyst  and Gregory Marks
07 February 2014 08:00 GMT

- U.S. Non-Farm Payrolls to Rise180K, Unemployment Rate to Hold at 6.7%

- Will December NFP See Large Upward Revision from 74K?

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

The U.S. economy is expected to add another 180K jobs in January, but another dismal print may undermine the bullish sentiment surrounding the dollar, especially if we don’t see a large upward revision to the 74K December reading.

What’s Expected:

Time of release: 02/07/2014 13:30 GMT, 8:30 EST

Primary Pair Impact: EURUSD

Expected: 180K

Previous: 74K

DailyFX Forecast: 150K to 200K

Why Is This Event Important:

Nevertheless, a positive employment report may encourage the Federal Reserve to reduce the asset-purchase program by another $10B at the March 19 meeting, and the central bank may look to normalize monetary policy sooner rather than later as Fed officials see a stronger recovery in 2014.

Expectations: Bullish Argument/Scenario

Release

Expected

Actual

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

3.2%

3.2%

Consumer Confidence (JAN)

78.0

80.7

Advance Retail Sales (MoM) (DEC)

0.1%

0.2%

Firms in the U.S. may ramp up on hiring amid the resilience in private sector consumption, and an upbeat NFP print may trigger a near-term rally in the dollar as it raises the scope of seeing the Fed raise the benchmark interest rate ahead of schedule.

Risk: Bearish Argument/Scenario

Release

Expected

Actual

Challenger Job Cuts (YoY) (JAN)

--

11.6%

ADP Employment Change (JAN)

185K

175K

ISM Manufacturing- Employment (JAN)

--

52.3

However, the recent batch of data certainly does not bode well for the labor market amid the uptick in planned job cuts along with the slowdown in business outputs, and another dismal release may trigger a further decline in the USD as it dampens the outlook for growth and inflation.

How To Trade This Event Risk(Video)

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Bullish USD Trade: NFP Increases 180K+; Unemployment Holds at 6.7%

  • Need to see red, five-minute candle following the print to consider a short trade on EURUSD
  • If market reaction favors a long dollar trade, sell EURUSD with two separate position
  • Set stop at the near-by swing high/reasonable distance from entry; look for at least 1:1 risk-to-reward
  • Move stop to entry on remaining position once initial target is hit; set reasonable limit

Bearish USD Trade: December Employment Report Falls Short of Market Forecast

  • Need green, five-minute candle to favor a long EURUSD trade
  • Implement same setup as the bullish dollar trade, just in the opposite direction

Potential Price Targets For The Release

EURUSD Daily

Forex_Strong_U.S._Non-Farm_Payrolls_NFP_to_Favor_Short_EURUSD_Setup_body_Picture_2.png, Strong U.S. Non-Farm Payrolls (NFP) to Favor Short EURUSD Setup

Chart - Created Using FXCM Marketscope 2.0

  • Preserves Descending Channel; Carving Lower High Ahead of NFP?
  • Relative Strength Index Needs to Maintain Bearish Trend to Favor Downside
  • Interim Resistance: 1.3800 (100.0 expansion) to 1.3830 (61.8 retracement)
  • Interim Support: 1.3450 (38.2% retracement) to 1.3460 (50.0% expansion)

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

Period

Data Released

Estimate

Actual

Pips Change

(1 Hour post event )

Pips Change

(End of Day post event)

DEC 2013

01/10/2013 13:30 GMT

196K

74K

+101

+97

December 2013 U.S. Non-Farm Payrolls

Forex_Strong_U.S._Non-Farm_Payrolls_NFP_to_Favor_Short_EURUSD_Setup_body_Picture_1.png, Strong U.S. Non-Farm Payrolls (NFP) to Favor Short EURUSD Setup

Despite strong ADP Employment Figures ahead of the NFP release last month, US Non-Farm Payrolls for December came in much weaker than market expectations and pushed the USDollar lower across the board. Surveys called for a net positive 196K reading, but figures indicated a weak 74K change. It is worth noting that further potential downside was at least limited by a strong upward revision from 203K to 241K for the November period. Market participants will surely be looking for another upward revision here in addition to a strong print to support the greenback. As for insight into this print, the ADP Employment Figures on Wednesday came in slightly below expectations, but the ISM Non-Manf. Employment component saw a month over month increase. With US yields, USD/JPY and the S&P 500 all at critical levels, a disappointing print could prove disastrous for the greenback moving into the end of the trading week. The lack of a strong upward revision for the December figure will also likely be viewed poorly by market participants.

--- Written by David Song, Currency Analyst

To contact David, e-mail dsong@dailyfx.com. Follow me on Twitter at @DavidJSong.

To be added to David's e-mail distribution list, please follow this link.

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07 February 2014 08:00 GMT