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Bearish USD Sentiment Remains- Need Strong NFP to Alter Fed Outlook

By , Currency Analyst
03 July 2014 07:00 GMT

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

- Would Mark Longest String of 200+K Prints Since 1999-2000

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

U.S. Non-Farm Payrolls (NFP) are projected to increase another 215K in June, but the European Central Bank (ECB) interest rate decision may spark a mixed reaction in the EUR/USD as market participants weigh the outlook for monetary policy.

What’s Expected:

EUR/USD NFP

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Why Is This Event Important:

Despite expectations of seeing the longest stretch of 200K+ prints since 1999-2000, it seems as though we would need a more meaningful pickup in job growth for the Federal Open Market Committee (FOMC) to soften its dovish tune for monetary policy, and the bearish sentiment surrounding the greenback may continue to take shape going into the Fed’s July 30 as Chair Janet Yellen remains reluctant to move away from the highly accommodative policy stance.

Expectations: Bullish Argument/Scenario

Release

Expected

Actual

ADP Employment Change (JUN)

205K

281K

ISM Manufacturing- Employment (JUN)

--

52.8

NFIB Small Business Optimism (MAY)

95.8

96.6

The pickup in private sector hiring along with the ongoing improvement in business confidence raises the scope for a better-than-expected NFP print, and a strong employment read may mitigate the bearish sentiment surrounding the USD as it puts increased pressure on the Fed to move away from its easing cycle.

Risk: Bearish Argument/Scenario

Release

Expected

Actual

Durable Goods Orders (MAY)

0.0%

-1.0%

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

-1.8%

-2.9%

Advance Retail Sales (MoM) (MAY)

0.6%

0.3%

However, the slowdown in private sector consumption paired with the persistent slack in the real economy may continue to drag on job growth, and a weak NFP figure may trigger selloff in the greenback as it raises the Fed’s scope to retain the zero-interest rate policy (ZIRP) beyond 2015.

How To Trade This Event Risk(Video)

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

  • Need red, five-minute candle following the release 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: 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

Bearish USD Sentiment Remains- Need Strong NFP to Alter Fed Outlook

Chart - Created Using FXCM Marketscope 2.0

  • Preserve Ascending Channel for Now While RSI Retains Long-Term Bearish Trend
  • Interim Resistance: 1.3770 (38.2% expansion) to 1.3790 (38.2% retracement)
  • Interim Support: 1.3490 (50.0% retracement) to 1.3500 Pivot

Read More:

Price & Time: USD/JPY breaking point

US Dollar Might Finally Turn the Corner as Trader Positions Hit Extremes

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)

MAY 2014

6/06/2014 12:30 GMT

215K

217K

+8

+2

May 2014 U.S. Non-Farm Payrolls

Bearish USD Sentiment Remains- Need Strong NFP to Alter Fed Outlook

The U.S. economy added another 217K jobs in May following a revised 282K expansion the month prior, while the jobless rate unexpectedly held steady at an annualized 6.3% amid forecasts for a 6.4% print. Despite the downtick in unemployment, the EUR/USD climbed back above the 1.3650 region following the release, but the market reaction was short-lived as the pair ended the day at 1.3640.

--- 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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03 July 2014 07:00 GMT