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EUR/USD Rebound to Fizzle on Strong NFP- False RSI Break?

EUR/USD Rebound to Fizzle on Strong NFP- False RSI Break?

2014-10-03 07:00:00
David Song, Shuyang Ren,
Share:

- U.S. Non-Farm Payrolls (NFP) to Pick Up From Lowest Print Since .

- Jobless Rate to Hold at 6.1% for Second Consecutive Month.

For more updates, sign up for David's e-mail distribution list.

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

A pickup in U.S. Non-Farm Payrolls (NFP) may spur a further decline in the EUR/USD as the Federal Reserve is widely expected to halt its quantitative easing (QE) program at the October 29 policy meeting.

What’s Expected:

EUR/USD NFP

Click Here for the DailyFX Calendar

Why Is This Event Important:

The deviation in the policy outlook certainly casts a long-term bearish outlook for the EUR/USD, but a further slowdown in job growth may generate a larger pullback in the dollar as it would allow the Federal Open Market Committee (FOMC) to further delay the normalization cycle.

Expectations: Bullish Argument/Scenario

Release

Expected

Actual

Challenger Job Cuts (YoY) (SEP)

--

-24.4%

ADP Employment Change (SEP)

205K

213K

Gross Domestic Product (Annualized) (2Q F)

4.6%

4.6%

The ongoing decline in planned job-cuts along with the pickup in private sector activity may spur a meaningful uptick in job growth, and a positive print may spur another round of dollar strength as it boosts interest rate expectations.

Risk: Bearish Argument/Scenario

Release

Expected

Actual

Construction Spending (MoM) (AUG)

0.5%

-0.8%

Pending Home Sales (MoM) (AUG)

-0.5%

-1.0%

Building Permits (MoM) (AUG)

-1.6%

-5.6%

However, the slowdown in building activity paired with the persistent weakness in the housing market may drag on hiring, and another disappointing employment report may trigger a near-term decline in the greenback as it dampens bets of seeing the Fed normalize policy sooner rather than later.

How To Trade This Event Risk(Video)

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

Bullish USD Trade: Job & Wage Growth Picks Up

  • Need red, five-minute candle following the release to consider a short trade on EUR/USD
  • If market reaction favors a long dollar position, sell EUR/USD 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: NFPs Disappoint for Third Consecutive Month

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

Potential Price Targets For The Release

EUR/USD Daily

EUR/USD Daily Chart

Chart - Created Using FXCM Marketscope 2.0

  • As Relative Strength Index (RSI) comes off of oversold territory, break of near-term bearish momentum should highlight a larger topside correction.
  • Interim Resistance: 1.3010 (50.0% retracement) to 1.3020 (23.6% expansion)
  • Interim Support: 1.2450 (78.6% retracement) to 1.2500 pivot

Read More:

Price & Time: NZD/JPY Bear Pattern Hangs in the Balance

Dollar Shows Concrete Signs of Reversal - Here’s What to Watch Next

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

Period

Data Released

Estimate

Actual

Pips Change

(1 Hour post event )

Pips Change

(End of Day post event)

AUG 2014

09/05/2014 12:30 GMT

230K

142K

+15

+3

August 2014 U.S. Non-Farm Payrolls

EUR/USD Chart

U.S. Non-Farm Payrolls (NFP) advanced only 142K in August to mark the slowest pace of growth for 2014 after climbing a revised 212K the preceding month. The jobless rate declined as expected to an annualized 6.1% from the prior month’s 6.2% as discouraged workers left the labor force, with participation rate slipping to 62.8% from 62.9%. The slowing recovery in employment may dampen the Fed’s scope to normalize policy sooner rather than later as Chair Janet Yellen remains in to rush to remove the zero-interest rate policy (ZIRP). The lower-than expected print dragged on the greenback, with the EUR/USD rising 28 pips right after the release to mark a fresh session high of 1.2988. However, the reaction was short-lived, with the pair consolidating during the rest of the North America trade to close at 1.2950.

--- Written by David Song, Currency Analyst and Shuyang Ren

To contact David, e-mail dsong@dailyfx.com. Follow me on Twitter at @DavidJSong.

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