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EUR/USD- Trading the U.S. Non-Farm Payrolls (NFP) Report

EUR/USD- Trading the U.S. Non-Farm Payrolls (NFP) Report

David Song, Strategist

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

What’s Expected:

Time of release: 07/05/2013 12:30 GMT, 8:30 EDT

Primary Pair Impact: EURUSD

Expected: 165K

Previous: 175K

DailyFX Forecast: 160K to 185K

Why Is This Event Important:

U.S. Non-Farm Payrolls are projected to increase another 165K in June and the ongoing improvement in the labor market should heighten the appeal of the USD as it dampens the Fed’s scope to retain its highly accommodative policy stance. As the world’s largest economy gets on a more sustainable path, it looks as though tapering the asset-purchase program will be a growing discussion at the Federal Reserve, and the FOMC remains poised to switch gears later this year as the committee anticipates a stronger recovery in the second-half of 2013.

Recent Economic Developments

The Upside

Release

Expected

Actual

ADP Employment Change (JUN)

160K

188K

Durable Goods Orders (MAY)

3.0%

3.6%

Advance Retail Sales (MAY)

0.4%

0.6%

The Downside

Release

Expected

Actual

ISM Non-Manufacturing (JUN)

54.0

52.2

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

2.4%

1.8%

Industrial Production (MAY)

0.2%

0.0%

As the Fed continues to highlight the resilience in private sector consumption, the persistent strength in household spending may prompt U.S. firms to expand their labor force, and a positive development should spark a near-term rally in the dollar as it raises the outlook for growth. However, the slowdown in service-based activity along with lower rate of production may drag on hiring, and we may see the Fed retain its quantitative easing program throughout 2013 in an effort to encourage a stronger recovery.

Potential Price Targets For The Release

Forex_EURUSD-_Trading_the_U.S._Non-Farm_Payrolls_NFP_Report_body_ScreenShot125.png, EUR/USD- Trading the U.S. Non-Farm Payrolls (NFP) Report

Despite the marked selloff following the European Central Bank interest rate decision, we’re seeing the EURUSD preserve the upward trend from earlier this year, but the euro-dollar may continue to give back the rebound from back in April (1.2743) should the Non-Farm Payrolls report present further arguments to taper the Fed’s quantitative easing program. However, a dismal updated on the labor market may dampen the appeal of the reserve currency, and the near-term rebound in the EURUSD may continue to gather pace over the next 24-hours of trading should the data fall short of market expectations.

How To Trade This Event Risk

Indeed, forecasts for another 165K rise in Non-Farm Payrolls highlights a bullish outlook for the reserve currency, and the market reaction may pave the way for a long U.S. dollar trade as it increases the scope of seeing the Fed scale back on QE. Therefore, if NFPs top market expectations, we will need a red, five-minute candle following the release to generate 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 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 hits its mark in order to preserve our profits.

In contrast, the ongoing slack in the real economy may continue to drag on employment, and a dismal print may dampen the appeal of the greenback as it fuels speculation for additional monetary support. As a result, if the labor data disappoints, we will carry out the same trade 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)

MAY 2013

06/07/2013 12:30 GMT

163K

175K

-46

-40

May 2013 U.S. Non-Farm Payrolls

Forex_EURUSD-_Trading_the_U.S._Non-Farm_Payrolls_NFP_Report_body_ScreenShot119.png, EUR/USD- Trading the U.S. Non-Farm Payrolls (NFP) Report

The U.S. economy added another 175K jobs in May following a revised 149K rise the month prior, while the jobless rate widened to an annualized 7.6% from 7.5% as discouraged workers returned to the labor force. Despite the mixed reaction immediately following the release, we saw the greenback gain ground throughout the North American trade, with the EURUSD ending the day at 1.3211.

--- Written by David Song, Currency Analyst

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

Follow me on Twitter at @DavidJSong

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