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

What’s Expected:

Time of release: 06/07/2013 12:30 GMT, 8:30 EDT

Primary Pair Impact: EURUSD

Expected: 165K

Previous: 165K

DailyFX Forecast:160K to 200K

Why Is This Event Important:

The world’s largest economy is expected to add another 165K job in May and a positive development should heighten the appeal of the U.S. dollar as it limits the Fed’s scope to expand the balance sheet further. In turn, the FOMC may show a greater willingness to taper the asset purchase program in the second-half of the year, and the central bank may switch gears in the second-half of the year as the economic recovery gradually gathers pace.

Recent Economic Developments

The Upside

Release

Expected

Actual

Durable Goods Orders (APR)

1.5%

3.3%

New Home Sales (APR)

1.9%

2.3%

Advance Retail Sales (APR)

-0.3%

0.1%

The Downside

Release

Expected

Actual

ADP Employment Change (MAY)

165K

135K

ISM Manufacturing (MAY)

51.0

49.0

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

2.5%

2.4%

The resilience in private sector consumption along with budding recovery in the housing market may encourage a marked rise in employment, and a strong print may prompt a greater discussion to scale back on quantitative easing as the region gets on a more sustainable path. However, the persistent slack in the real economy paired with the lull in business outputs may drag on the labor market, and we may see businesses scale back on hiring in order to boost their bottom line.

Potential Price Targets For The Release

Forex_EURUSD-_Trading_the_U.S._Non-Farm_Payrolls_NFP_Report_body_ScreenShot024.png, EUR/USD- Trading the U.S. Non-Farm Payrolls (NFP) Report

As the EURUSD clears the May high (1.3241), the sharp advance in the exchange rate dampens the scope of seeing the head-and-shoulders formation pan out, and we may see the euro-dollar continue to retrace the decline from earlier this year should the NFP report renew speculation for more QE. However, a strong employment report may trigger a sharp rebound in the greenback, and the EURUSD may make another run at the 23.6% Fibonacci retracement from the 2009 high to the 2010 low around 1.2640-50 should the data further the case to taper the asset-purchase program.

How To Trade This Event Risk

Trading the given event risk may not be as clear cut as some of our other trades as employment is expected to grow another 165K in May, but an upbeat print may pave the way for a long U.S. dollar trade as it dampens speculation for more quantitative easing. Therefore, if NFPs top market expectations, we will need a red, five-minute candle following the report to generate a sell entry on two-lots of EURUSD. 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 hits its mark in order to preserve our profits.

On the other hand, the ongoing weakness in the real economy may continue to drag on the labor market, and a dismal print may weigh on the greenback as it fuels bets for additional monetary support. As a result, if the employment report disappoints, 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

Period

Data Released

Estimate

Actual

Pips Change

(1 Hour post event )

Pips Change

(End of Day post event)

APR 2013

05/03/2013 12:30 GMT

140K

165K

-60

-26

April 2013 U.S. Non-Farm Payrolls

Forex_EURUSD-_Trading_the_U.S._Non-Farm_Payrolls_NFP_Report_body_ScreenShot132.png, EUR/USD- Trading the U.S. Non-Farm Payrolls (NFP) Report

U.S. Non-Farm Payrolls increased another 165K in April following a revised 138K expansion the month prior, while the unemployment rate unexpectedly slipped to 7.5% from 7.6% as discouraged workers continued to leave the labor force. Indeed the U.S. dollar tracked higher following the positive print, with the EURUSD slipping back below the 1.3000 handle, but the greenback struggled to hold its ground throughout the North American trade as the pair closed at 1.3113.

--- Written by David Song, Currency Analyst

To contact David, e-mail dsong@dailyfx.com.

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