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NFP to Steer Fed Guidance- USD Outlook Hinges on Taper Bets

NFP to Steer Fed Guidance- USD Outlook Hinges on Taper Bets

David Song, Gregory Marks,

- U.S. Non-Farm Payrolls to Climb 185K, Unemployment Rate to Narrow to 7.2%

- NFP(OCT) Topped Market Forecast for the First Time in the Last Four Prints

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

The U.S. economy is expected to add another 185K jobs in November and a positive development may highlight a bullish outlook for the dollar as it raises the Fed’s scope to taper the asset-purchase program at the December 17-18 meeting.

What’s Expected:

Time of release: 12/06/2013 13:30 GMT, 8:30 EST

Primary Pair Impact: EURUSD

Expected: 185K

Previous: 204K

DailyFX Forecast: 160K to 200K

Why Is This Event Important:

A further improvement in the U.S. labor market may spark a more material shift in the policy outlook as the Fed retains its forward-guidance for monetary policy, and we may see a growing number of central bank officials show a greater willingness to move away from the easing cycle.

Expectations: Bullish Argument/Scenario

Release

Expected

Actual

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

3.1%

3.6%

ADP Employment Change (NOV)

170K

215K

Advance Retail Sales (MoM) (OCT)

0.1%

0.4%

The resilience in private sector consumption along with the pickup in growth may foster a larger-than-expected rise in NFP, and a positive development may fuel bets for a December taper as Fed officials refrain from undermining the timeline laid out by Chairman Ben Bernanke.

Risk: Bearish Argument/Scenario

Release

Expected

Actual

ISM Non-Manufacturing (NOV)

55.0

53.9

Industrial Production (MoM) (OCT)

0.2%

-0.1%

NFIB Small Business Optimism (OCT)

93.5

91.6

However, NFPs may disappoint should the slowdown in business outputs drag on hiring, and a dismal employment report may spark a sharp selloff in the USD as it raises the risk of seeing the FOMC carry its highly accommodative policy stance into 2014.

How To Trade This Event Risk(Video)

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

Bullish USD Trade: NFP Increases 185K+; Unemployment Slips to 7.2%

  • Need to see red, five-minute candle following the print to consider a short trade on EURUSD
  • If market reaction favors a long dollar trade, sell 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
  • Move stop to entry on remaining position once initial target is hit; set reasonable limit

Bearish USD Trade: November Job Growth Disappoints

  • Need green, five-minute candle to favor a long EURUSD trade
  • Implement same setup as the bullish dollar trade, just in the opposite direction

Potential Price Targets For The Release

EURUSD Daily

Forex_NFP_to_Steer_Fed_Guidance-_USD_Outlook_Hinges_on_Taper_Bets_body_Picture_2.png, NFP to Steer Fed Guidance- USD Outlook Hinges on Taper Bets

Chart - Created Using FXCM Marketscope 2.0

  • Clears Interim Resistance; Upward Trending Channel in Focus
  • Bullish Relative Strength Index Points to Further Advances
  • Interim Resistance: 1.3700 Pivot to 1.3716 (78.6 retracement)
  • Interim Support: 1.3490 (50.0 retracement) to 1.3500 (38.2 retracement)

Impact that the U.S. Non-Farm Payrolls report has had on EUR/USD during the last month

Period

Data Released

Estimate

Actual

Pips Change

(1 Hour post event )

Pips Change

(End of Day post event)

OCT 2013

11/08/2013 13:30 GMT

119K

204K

-49

-45

October 2013 U.S. Non-Farm Payrolls

Forex_NFP_to_Steer_Fed_Guidance-_USD_Outlook_Hinges_on_Taper_Bets_body_Picture_1.png, NFP to Steer Fed Guidance- USD Outlook Hinges on Taper Bets

Last month’s NFP print covered the U.S. government shutdown in October and pushed economists to give a dismal 119K estimate. The 204K print ended up coming in at the highest since February and the second highest of 2013. The better than expected reading slammed EUR/USD lower and- after some chop- ended down only 49 pips after an hour. Data out of the U.S. (including employment components in ISM surveys and the ADP Employment Change) has been favorable over the past week, but those expecting a beat must take note of the revised estimate up to 185K. If we do see a beat, expect speculation of a December Fed taper to resume after one incredible week in U.S. data.

--- 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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