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

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

2011-12-01 21:38:00
David Song, Currency Strategist
Share:

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

What’s Expected:

Time of release: 12/01/2011 13:30 GMT, 8:30 EST

Primary Pair Impact: EURUSD

Expected: 125K

Previous: 80K

DailyFX Forecast: 60K to 150K

Why Is This Event Important:

Employment in the world’s largest economy is anticipated to increase another 125K in November following the 80K print in the previous month, and the development could dampen expectations for additional monetary support as Fed officials expect private sector activity to gradually gather pace over the coming months. As job growth picks up, we may see the FOMC talk down speculation for another large-scale asset purchase program, and the central bank may see scope to start normalizing monetary policy in 2012 as the U.S. is expected to avoid a double-dip recession. However, we will need to see a much faster recovery in the labor market to recoup the 8+million jobs lost during the recession, and Fed Chairman Ben Bernanke may keep the door open to expand monetary policy further as the central bank sticks to its dual mandate to ensure price stability while fostering full-employment.

Recent Economic Developments

The Upside

Release

Expected

Actual

ADP Employment Change (NOV)

130K

206K

Challenger Job Cuts (YoY) (NOV)

--

-12.8%

Industrial Production (OCT)

0.4%

0.7%

The Downside

Release

Expected

Actual

Personal Spending (OCT)

0.3%

0.1%

Non-Defense Capital Goods Orders ex Aircrafts (OCT)

-1.0%

-1.8%

Gross Domestic Product (Annualized) (QoQ) (3Q P)

2.5%

2.0%

The marked rise in private sector employment paired with the expansion in production certainly bodes well for NFPs, and an above-forecast print could lead the EUR/USD to give back the advance from earlier this week as the fundamental outlook for the world’s largest economy improves. However, the slowdown in private sector consumption paired with fears of a double-dip may push firms to scale back on hiring, and we may see the Fed carry its easing cycle into the following year as the central bank aims to encourage a sustainable recovery. In turn, we may see the employment report fall short of market expectations, and the rebound in the EUR/USD may gather pace over the next 24-hours of trading as investors increase bets for QE3.

Potential Price Targets For The Release

EURUSD_Trading_the_U.S._Non-Farm_Payrolls_Report_body_ScreenShot123.png, EUR/USD: Trading the U.S. Non-Farm Payrolls Report

How To Trade This Event Risk

As we’re expecting to see a pickup in job growth, the development should help to prop up the reserve currency, and the market reaction could pave the way for a long U.S. dollar trade as growth prospects improve. Therefore, if NFPs increase 125K or more in November, we will need to see a red, five-minute candle following the report to generate a sell entry on two-lots of EUR/USD. Once these conditions are fulfilled, we will set the initial stop at the nearby swing high, 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 cost once the first trade clears its mark in order to protect our profits.

On the other hand, we may see businesses scale back on hiring as the fundamental outlook remains clouded with high uncertainty, and the protracted recovery in the labor market may lead the FOMC to expand monetary policy further as it aims to stem the downside risks for growth and inflation. As a result, should we see employment increase less than 60K, we will carry out 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

Period

Data Released

Estimate

Actual

Pips Change

(1 Hour post event )

Pips Change

(End of Day post event)

OCT 2011

11/04/2011 12:30 GMT

80K

90K

-54

-57

October 2011 U.S. Non-Farm Payrolls

Employment in the world’s largest economy increased another 80K in October following a revised 158K rise in the month prior, while the jobless rate unexpectedly fell back to 9.0% during the same period as discouraged workers left the labor force. A deeper look at the report showed private payrolls increased 104K during the month, with manufacturing jobs advancing 5K, while the government shed 24K public sector employees. As the Federal Reserve maintains a cautious outlook for the region, the central bank may take additional steps to stimulate the ailing economy, and the FOMC may carry its easing cycle into the following year in order to combat the slowing recovery in the labor market. The initial reaction was certainly short-lived, with the EUR/USD falling back below 1.3800, and the greenback continued to gain ground throughout the North American trade as the exchange rate ended the day at 1.3768.

EURUSD_Trading_the_U.S._Non-Farm_Payrolls_Report_body_ScreenShot122.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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