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EURUSD: Trading the U.S. Non-Farm Payrolls Report

EURUSD: Trading the U.S. Non-Farm Payrolls Report

David Song, Strategist

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

What’s Expected:

Time of release: 08/03/2012 12:30 GMT, 8:30 EDT

Primary Pair Impact: EURUSD

Expected: 100K

Previous: 80K

DailyFX Forecast: 80K to 120K

Why Is This Event Important:

U.S. Non-Farm Payrolls are projected to increase another 100K in July and the faster rate of job growth should prop up the U.S. dollar as it dampens the scope for additional monetary easing. As the FOMC continues to carry out ‘Operation Twist,’ the ongoing improvement in the labor market limits the Fed’s scope to expand its balance sheet further, and we should see the central bank move away from quantitative easing as policy makers see the recovery gradually gathering pace in the coming months.

Recent Economic Developments

The Upside

Release

Expected

Actual

Challenger Job Cuts (YoY) (JUL)

--

-44.5%

ADP Employment Change (JUL)

120K

163K

Gross Domestic Product (Annualized) (QoQ) (2Q A)

1.4%

1.5%

The Downside

Release

Expected

Actual

Factory Orders (JUN)

0.5%

-0.5%

Personal Spending (JUN)

0.1%

0.0%

Advance Retail Sales (JUN)

0.2%

-0.5%

The drop in job cuts along with the rise in private sector employment certainly bodes well for non-farm payrolls, and a marked improvement in the labor market should continue to dampen speculation for QE3 as the economy gets on a more sustainable path. However, the slowdown in private sector consumption paired with the ongoing weakness in the housing market may continue to drag on job growth, and a weaker-than-expected print may dampen the appeal of the greenback as the Fed keeps the door open to expand monetary policy further.

Potential Price Targets For The Release

EURUSD_Trading_the_U.S._Non-Farm_Payrolls_Report_body_ScreenShot045.png, EURUSD: Trading the U.S. Non-Farm Payrolls Report

Indeed, the EURUSD failed to clear the 50-Day SMA (1.2408) as the European Central Bank stuck to its current policy, and the technical outlook remains bearish as the relative strength index maintains the downward trend from earlier this year. In turn, it seems as though the euro-dollar is carving out a lower top in August, and the pair looks poised to give back the rebound from June (1.2041) as the relief rally in the single currency tapers off.

How To Trade This Event Risk

Forecasts for a faster rate of job growth certainly instills a bullish outlook for the greenback, and a positive development may pave the way for a long U.S. dollar trade as market participants curb bets for QE3. Therefore, if NFPs increase 100K or greater in July, we will need a red, five-minute candle following the print to establish a sell entry on two-lots of EURUSD. Once these conditions are fulfilled, we will set the initial stop at the nearby swing high or a reasonable distance from the entry, and this risk will generate 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 firs trade hits its mark in an effort to protect our gains.

On the other hand, the slowing recovery paired with the weak housing market may continue to drag on hiring, and we may continue to see jobs report fall short of market expectations amid the ongoing slack in private sector activity. As a result, if NFPs miss forecast, we will carry out the same setup for a long euro-dollar trade as the short position mentioned above, just in the opposite direction.

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)

JUN 2012

07/06/2012 12:30 GMT

100K

80K

-42

-90

June 2012 U.S. Non-Farm Payrolls

EURUSD_Trading_the_U.S._Non-Farm_Payrolls_Report_body_ScreenShot042.png, EURUSD: Trading the U.S. Non-Farm Payrolls Report

The world’s largest economy added another 80K jobs in June following a 77K rise the month prior, while the unemployment rate held steady at 8.2% for the second month. Indeed, the weaker-than-expected employment report dragged on risk-taking behavior, with the EURUSD pushing back below the 1.2350 figure, and the pair tracked lower throughout the North American trade as it closed at 1.2284.

--- 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

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

Meet the DailyFX team in Las Vegas at the annual FXCM Traders Expo, November 2-4, 2012 at the Rio All Suite Hotel & Casino. For additional information regarding the schedule, workshops and accommodations, visit the FXCM Trading Expo website.

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

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