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EUR/USD Breakout to Take Shape on Dismal Non-Farm Payrolls (NFP)

By , Currency Analyst  and Gregory Marks
02 May 2014 07:00 GMT

- U.S. Non-Farm Payrolls (NFP) to Increase 215K- Largest Rise Since November (274K).

- Unemployment Rate to Narrow to 6.6%- Lowest Since January.

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

The U.S. Non-Farm Payrolls (NFP) report may spark a bullish reaction in the dollar (bearish EUR/USD) as the economy is expected to add another 215K jobs in in April, while the jobless is projected to narrow to 6.6% from 6.7% the month prior.

What’s Expected:

EUR/USD NFP

Why Is This Event Important:

A pickup in job growth paired with a further decline in unemployment may put increased pressure on the Federal Open Market Committee (FOMC) to normalize monetary policy sooner rather than later, but the data may do little to alter the Fed’s policy outlook as Chair Janet Yellen remains reluctant to move away from the zero-interest rate policy (ZIRP).

Expectations: Bullish Argument/Scenario

Release

Expected

Actual

ADP Employment Change (APR)

210K

220K

Personal Consumption (1Q A)

2.0%

3.0%

NFIB Small Business Optimism (MAR)

92.5

93.4

The ongoing strength in private sector consumption paired with the uptick in business sentiment may prompt a sharp rise in job growth, and a better-than-expected print may generate a near-term pullback in the EUR/USD as it raises the fundamental outlook for the U.S. economy.

Risk: Bearish Argument/Scenario

Release

Expected

Actual

Gross Domestic Product (1Q A)

1.2%

0.1%

Building Permits (MoM) (MAR)

-0.4%

-2.4%

Producer Price Index (YoY) (MAR)

1.1%

1.4%

However, rising input prices paired with the persistent slack in the real economy may push businesses to scale back on hiring, and a dismal NFP print may heighten the bearish sentiment surrounding the reserve currency as it drags on interest rate expectations.

How To Trade This Event Risk(Video)

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Bullish USD Trade: NFPs Advance 215K+; Unemployment Slips to 6.6%

  • Need to see red, five-minute candle following the NFP print to consider a short trade on EUR/USD
  • If market reaction favors a long dollar trade, sell EUR/USD 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: April Employment Report Disappoints

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

Potential Price Targets For The Release

EUR/USD Daily

EUR/USD Daily Chart

Chart - Created Using FXCM Marketscope 2.0

  • Risks Larger Breakout as RSI Fails to Preserve Bearish Momentum
  • Interim Resistance: 1.3960-70 (61.8 expansion)
  • Interim Support: 1.3650 (78.6% expansion) to 1.3660 (61.8 retracement)

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

Period

Data Released

Estimate

Actual

Pips Change

(1 Hour post event )

Pips Change

(End of Day post event)

MAR 2014

4/04/2013 12:30 GMT

200K

192K

+8

+14

March 2014 U.S. Non-Farm Payrolls

EUR/USD Chart

At the March Non-Farm Payrolls release we saw a print of 192K vs. 200K estimates and the figure, largely in line, caused little follow through in the EUR/USD pair. Following chop on both sides, we the week slightly higher. On Wednesday we saw ADP Employment Change figures for April come in slightly above estimates at 220K vs. 2010K expected. This will be the last major event risk for the week a key for monthly opening ranges.

--- Written by David Song, Currency Analyst and Gregory Marks

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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02 May 2014 07:00 GMT