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EUR/USD: Trading the U.S. Non-Farm Payrolls Report

EUR/USD: Trading the U.S. Non-Farm Payrolls Report

2011-10-06 19:58:00
David Song, Currency Strategist

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

What’s Expected:

Time of release:10/07/2011 12:30 GMT, 8:30 EST

Primary Pair Impact:EURUSD

Expected: 55K

Previous: 0K

DailyFX Forecast: -20K to 60K

Why Is This Event Important:

U.S. Non-Farm Payrolls are anticipated to increase 55K in September, but the protracted recovery in the labor market may weigh on the exchange rate as it instills a weakened outlook for future growth. As the U.S. faces an increased risk of a double-dip recession, we may see the Fed employ additional policy tools to stimulate the ailing economy, and the central bank may carry its easing cycle into the following year in order to stem the downside risks for growth and inflation.

However, a better-than-expected print may lead the FOMC to adopt a wait-and-see approach for the remainder of the year, and the central bank may see scope to start normalizing monetary policy in 2012 as it expects economic activity to gather pace over the coming months. Nevertheless, we may see an inverse reaction in the USD as risk trends continue to dictate price action in the foreign exchange market, and the dollar may regain its footing should investors scale back their appetite for yields.

Recent Economic Developments

The Upside




ISM Manufacturing (Employment) (SEP)



ADP Employment Change (SEP)



Non-Defense Capital Goods Orders ex Aircrafts (AUG)



The Downside




ISM Non-Manufacturing (Employment) (SEP)



Challenger Job Cuts (YoY) (SEP)



Advance Retail Sales (AUG)



The rise in business investments paired with the expansion in private sector employment bodes well for NFPs, and an above-forecast print may lead the EUR/USD to give back the advance from earlier this week as the data encourages an improved outlook for the world’s largest economy. However, the contraction in service-based employment paired with the jump in planned job cuts casts a dour outlook for the labor market, and a dismal NFP report is likely to dampen the appeal of the greenback as the fundamental outlook for the U.S. deteriorates. In turn, the near-term rebound in the EUR/USD may gather pace, and the exchange rate may work its way back above the 50.0% Fibonacci retracement from the 2009 high to the 2010 low around 1.3500.

Potential Price Targets For The Release

EURUSD_Trading_the_U.S._Non-Farm_Payrolls_Report_body_ScreenShot050.png, EUR/USD: Trading the U.S. Non-Farm Payrolls Report

How To Trade This Event Risk

The tepid pace of job growth casts a bearish outlook for the greenback, but a positive employment report could pave the way for a long U.S. dollar trade as growth prospects improve. Therefore, if NFPs climb more than 55K in September, we will need a red, five-minute candle subsequent to the release to generate a sell entry on two-lots of EUR/USD. Once these conditions are met, we will set the initial stop at the nearby swing high or a reasonable distance from the entry, and this risk will establish our first target. The second objective will be based on discretion, and we will move the stop on the second lot to breakeven once the first trade reaches its mark in order to preserve our profits.

On the other hand, the slowdown in private sector consumption paired with the heightening risk of a double-dip recession may lead businesses to scale back on hiring, and a dismal employment report could spark a sharp selloff in the greenback as it dampens the outlook for future growth. As a result, if we see NFPs miss market expectations, we will implement the same strategy for a long euro-dollar trade as the short position laid out above, just in reverse.

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


Data Released



Pips Change

(1 Hour post event )

Pips Change

(End of Day post event)

AUG 2011

09/02/2011 12:30 GMT





August 2011 U.S. Non-Farm Payrolls

Employment in the world’s largest economy held flat in August after rising a revised 85K in the previous month, while the jobless rate held steady at 9.1% for the second consecutive month. The breakdown of the report showed a 17K rise in private payrolls amid forecasts for a 95K expansion, while average hourly earnings unexpectedly fell 0.1% during the same period to mark the first contraction since January 2008. As the protracted recovery in the labor market dampens the outlook for future growth, the Federal Reserve may step up its efforts to stimulate the ailing economy, and the FOMC may carry its easing cycle into the following year as the region faces a growing risk of a double-dip recession. The initial reaction to NFPs was short-lived, with the EUR/USD falling back below 1.4200, and the exchange rate continued to hold lower throughout the day as it settled at 1.4193.

EURUSD_Trading_the_U.S._Non-Farm_Payrolls_Report_body_ScreenShot049.png, EUR/USD: Trading the U.S. Non-Farm Payrolls Report

--- 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, send an e-mail with subject line "Distribution List" to dsong@dailyfx.com.

Questions? Comments? Join us in the DailyFX Forum

Join Currency Analyst Michael Boutros in the DailyFX Trading Room to cover the event LIVE!

View the Expo Presentation on ‘Trading the News’ For Additional Resources

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