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EUR/USD at Risk of Carving Lower-High on Non-Farm Payrolls (NFP)

By , Currency Analyst
06 June 2014 07:00 GMT

- U.S. Non-Farm Payrolls (NFP) to Increase 200+K for Fourth Consecutive Month.

- 288K Print in April Marked the Highest Print Since January 2012.

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

U.S. Non-Farm Payrolls (NFP) are projected to increase another 215K in May, but the data print may spur a mixed reaction in the EUR/USD as the jobless rate is expected to widen to an annualized 6.4% from 6.3% the month prior.

What’s Expected:

EUR/USD NFP

Why Is This Event Important:

Despite the ongoing improvement in the labor market, it seems as though the Federal Open Market Committee (FOMC) will stick to its current approach at the June 18 meeting, and we would need to see a marked pickup in NFPs to see a material shift in the Fed’s policy outlook at Chair Janet Yellen remains in no rush to normalize monetary policy.

Expectations: Bullish Argument/Scenario

Release

Expected

Actual

ISM Non-Manufacturing (MAY)

55.5

56.3

Durable Goods Orders (APR)

-0.7%

0.8%

NFIB Small Business Optimism (APR)

94.5

95.2

The ongoing improvement in business sentiment along with the resilience in private sector consumption may encourage U.S. firms to further expand their labor force, and a positive development may spur a bullish reaction in the greenback as it puts increased pressure on the Fed to move away from its highly accommodative policy stance.

Risk: Bearish Argument/Scenario

Release

Expected

Actual

Challenger Job Cuts (YoY) (MAY)

--

45.5%

ADP Employment Change (MAY)

210K

179K

Gross Domestic Product (Annualized) (QoQ) (1Q P)

-0.5%

-1.0%

Nevertheless, the rise in planned job-cuts paired with the persistent slack in the real economy may ultimately generate a disappointing labor report, and a dismal print may heighten the bearish sentiment surrounding the reserve currency as it drags on interest rate expectations.

How To Trade This Event Risk(Video)

Join DailyFX on Demand for Full Coverage of U.S. Non-Farm Payrolls

Bullish USD Trade: NFPs Climb 215K+; Unemployment Holds Steady

  • 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: Job Growth, Jobless Rate Disappoint

  • 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

  • Failure to Close Above Former Support Favors Bearish Forecast
  • Interim Resistance: 1.3770 (38.2% expansion) to 1.3780 (38.2% retracement)
  • Interim Support: 1.3490 (50.0% retracement) to 1.3500 Pivot

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)

APR 2014

5/2/2013 12:30 GMT

218K

288K

-47

+12

April 2014 U.S. Non-Farm Payrolls

EUR/USD Chart

U.S. Non-Farm Payrolls increased 288K in April following a revised 203K rise the month prior, while the jobless rate unexpectedly slipped to an annualized 6.3% from 6.7% as discouraged workers continued to leave the labor force. The better-than-expected NFP print pushed the EUR/USD back down towards the 1.3800 handle, but the market reaction was certainly short-lived as the pair ended the day at 1.3871.

--- 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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06 June 2014 07:00 GMT