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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?

David Song, Shuyang Ren,

- 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

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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)

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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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