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EUR/USD: Expect US NFP Jobs Data to Spark Forex Volatility

EUR/USD: Expect US NFP Jobs Data to Spark Forex Volatility

Rich Dvorak, Analyst

EURUSD VOLATILITY SPIKES AROUND US NONFARM PAYROLL DATA RELEASE

  • Spot EURUSD fluctuates +/- 36 pips on average in response to monthly US nonfarm payrolls employment data, which compares to +/- 4 pips on average otherwise
  • Heightened forex volatility around high-impact economic events and data releases impacting spot EURUSD like monthly US NFP data warrants extra caution by traders
  • Find out How to Trade the Most Volatile Currency Pairs

EURUSD is the world’s most liquid and heavily traded forex pair. This can make spot EURUSD price action less volatile compared to other pairs such as AUDJPY or emerging market currencies. Yet, that is not to say spot EURUSD goes without brief episodes of large price swings.

Volatility, broadly speaking, arises during times of heightened market uncertainty and in response to high-impact economic events and data releases. As such, closely watched economic indicators that are largely viewed as market moving or having potential to sway central bank monetary policy decisions can be expected to spark forex volatility. One such economic event that usually sparks a dramatic move in spot EURUSD is the monthly release of US nonfarm payroll employment data.

SPOT EURUSD PRICE CHART: WEEKLY TIME FRAME (JANUARY 2015 TO JULY 2019)

Spot EURUSD Price Chart

US nonfarm payrolls (NFP) data – also referred to informally as the monthly US jobs report – is released by the Bureau of Labor Statistics (BLS), which provides market participants with a detailed summary of the employment situation and labor market conditions in America. In light of the Federal Reserve’s stated dual-mandate of stable prices and maximum employment, it is unsurprising that US Dollar forex traders place great importance on the monthly US NFP report.

US NFP REPORT SPARKS FOREX VOLATILITY IN SPOT EURUSD

EURUSD Volatility chart around US Nonfarm payrolls data

In fact, spot EURUSD volatility jumps exponentially around the time monthly US nonfarm payroll data is released. Judging by the currency market’s historical reaction to the US NFP report, EURUSD forex traders might expect spot prices to swing +/- 36 pips on average around the 15-minute bar when the jobs data is published. This compares to the average 15-minute change in spot EURUSD of +/- 4 pips dating back to January 2015.

SPOT EURUSD AVERAGE CHANGE IN RESPONSE TO US NONFARM PAYROLL DATA RELEASE

EURUSD volatility chart around US NFP Data

What might explain the sharp reaction in spot EURUSD to the release of monthly US NFP data? As with forecasting any number, the actual outcome of the report remains highly ambiguous – even top economists have difficulty estimating the headline number for monthly change in nonfarm payrolls. Consequently, the knee-jerk reaction in spot EURUSD surrounding the monthly US jobs report release can be principally explained by market participants aligning past expectations with current fundamentals. As such, it is worth noting that volatility is typically greater when the actual data reading differs materially from what is expected according to market forecasts.

That said, the sharp dip immediately following the US NFP report release indicates that, on average, the US Dollar appreciates relative to the Euro around this economic event. This could be explained by US NFP data surprises to the upside broadly outweighing surprises to the downside over the last 4 years, which is suggested by the cumulative drift lower in spot EURUSD surrounding the monthly US jobs report.

HOW SPOT EURUSD PERFORMS AROUND MONTHLY US JOBS REPORT RELEASE

EURUSD price chart average return around US NFP data

While past performance is not indicative of future results, analyzing historical price action in spot EURUSD around monthly US nonfarm payroll reports reveals that volatility tends to rise and provides its own degree of insight for forex traders. That said, it will likely prove beneficial to incorporate forex trading risk management techniques into your strategy – such as setting tighter stops or reducing leverage – particularly in consideration of heightened volatility that could be expected in spot EURUSD around monthly US nonfarm payroll reports.

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-- Written by Rich Dvorak, Junior Analyst for DailyFX.com

Connect with @RichDvorakFX on Twitter for real-time market insight

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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