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Trading Non-Farm Payrolls & Implications for FOMC Policy, USD

Trading Non-Farm Payrolls & Implications for FOMC Policy, USD

2013-10-22 07:00:00
David Song, Currency Strategist
Share:

- U.S. Non-Farm Payrolls to Climb 180K, Unemployment Rate to Hold at 7.3%

- Labor Force Participation Slipped to 63.2% from 63.4% in July (Lowest Since 1978)

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

With U.S. Non-Farm Payrolls expected to increase another 180K in September, a pickup in job growth may fuel a more meaningful rebound in the dollar as it highlights an improved outlook for the world’s largest economy.

What’s Expected:

Time of release: 10/22/2013 12:30 GMT, 8:30 EDT

Primary Pair Impact: EURUSD

Expected: 180K

Previous: 169K

DailyFX Forecast: 160K to 200K

Why Is This Event Important:

Indeed, an upbeat employment report may heighten the appeal of the dollar as the Fed largely retains the taper timeline laid out by Chairman Ben Bernanke, but we may see the FOMC further delay its exit strategy should the data highlight a slowing recovery.

Expectations: Bullish Argument/Scenario

Release

Expected

Actual

Consumer Credit (AUG)

$12.000B

$13.625B

Personal Spending (AUG)

0.3%

0.3%

Durable Goods Orders (AUG)

-0.2%

0.1%

The resilience in private consumption along with the ongoing expansion in consumer credit may help to boost hiring, and a positive development may spark a bullish reaction in the dollar as it raises the outlook for growth.

Risk: Bearish Argument/Scenario

Release

Expected

Actual

ISM Non-Manufacturing (Employment) (SEP)

--

52.7

Challenger Job Cuts (YoY) (SEP)

--

19.1%

ADP Employment Change (SEP)

180K

166K

Nevertheless, the persistent slack in the real economy may weigh on the labor market, and we may see the Fed carry its highly accommodative policy stance into the following year in an effort to encourage a stronger recovery.

How To Trade This Event Risk(Video)

Join DailyFX on Demand for Full Coverage of U.S. Non-Farm Payrolls

Bullish USD Trade: NFPs Rise 180K or More; Unemployment Rate Holds Steady

  • Need to see red, five-minute candle following the print to consider a short trade on EURUSD
  • If market reaction favors a sell trade, short EURUSD with two separate position
  • Set stop at the near-by swing high/reasonable distance from entry; look for at least 1:1 risk-to-reward
  • Shift stop to entry on remaining position once initial target is hit, set reasonable limit

Bearish USD Trade: Employment Report Misses Market Expectations

  • Need green, five-minute candle to favor a long EURUSD trade
  • Implement same setup as the bearish euro trade, just in reverse

Potential Price Targets For The Release

EURUSD Daily

Forex_Trading_Non-Farm_Payrolls_Implications_for_FOMC_Policy_USD_body_ScreenShot268.jpg, Trading Non-Farm Payrolls & Implications for FOMC Policy, USD

Chart - Created Using FXCM Marketscope 2.0

  • Maintains Bullish Channel From July; Bearish RSI Divergence?
  • Interim Resistance: 1.3740 (61.8% expansion) to 1.3760 (1.618% expansion)
  • Interim Support: 1.3450 (50.0% expansion) to 1.3490 (50.0% retracement)

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)

AUG 2013

09/06/2013 12:30 GMT

180K

169K

+33

+65

August 2013 U.S. Non-Farm Payrolls

Forex_Trading_Non-Farm_Payrolls_Implications_for_FOMC_Policy_USD_body_ScreenShot267.png, Trading Non-Farm Payrolls & Implications for FOMC Policy, USD

The U.S. economy added another 169K jobs in August, with the jobless rate narrowing to 7.3% from 7.4% the month prior, but the drop in unemployment was largely due to discouraged workers leaving the labor force as the participation rate slipped to 63.2% from 63.4% during the same period. The dollar struggled to hold its ground following the dismal results, with the EURUSD climbing above the 1.3150 region, and the greenback continued to track lower during the North American trade as the pair closed at 1.3175.

--- 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, please follow this link

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