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EUR/USD Rebound Vulnerable to Strong Non-Farm Payrolls (NFP) Report

EUR/USD Rebound Vulnerable to Strong Non-Farm Payrolls (NFP) Report

2014-12-05 08:00:00
David Song, Shuyang Ren,
Share:

- U.S. Non-Farm Payrolls (NFP) to Expand 200+K for Tenth Time in 2014.

- Jobless Rate to Hold at 5.8% for Second Consecutive Month.

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

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

The U.S. Non-Farm Payrolls (NFP) report may spark a bearish reaction in EUR/USD as market participants expected another 230K rise in employment paired with an uptick in wage growth.

What’s Expected:

EUR/USD NFP

Click Here for the DailyFX Calendar

Why Is This Event Important:

A batch of positive developments may spark another near-term rally in the greenback especially as a growing number of Fed officials show a greater willingness to normalize monetary policy in 2015.

Expectations: Bullish Argument/Scenario

Release

Expected

Actual

Challenger Job Cuts (YoY) (NOV)

--

-20.7%

Durable Goods Orders (OCT)

-0.6%

0.4%

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

3.3%

3.9%

The decline in planned job cuts along with the pickup in economic activity may generate a strong employment report, and the dollar may continue to outperform against its major counterparts over the near to medium-term amid growing bets for higher borrowing-costs in the U.S.

Risk: Bearish Argument/Scenario

Release

Expected

Actual

ISM Non-Manufacturing Employment (NOV)

--

56.7

ADP Employment Change (NOV)

222K

208K

ISM Manufacturing Employment (OCT)

--

54.9

However, the employment report may disappoint amid the ongoing slack in the labor market, and the greenback may face a larger correction over the near-term as a weaker-than-expected NFP print drags on interest rate expectations.

How To Trade This Event Risk(Video)

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

Bullish USD Trade: Strong Job/Wage Growth Boosts Interest Rate Expectations

  • 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: NFP Report Falls Short of Market Forecasts

  • 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 - Created Using FXCM Marketscope 2.0

  • Will retain the approach to sell-bounces in EUR/USD as price & RSI preserve the bearish trend.
  • Interim Resistance: 1.2600 pivot to 1.2610 (61.8% expansion)
  • Interim Support: 1.2280 (100% expansion) to 1.2290 (38.2% expansion)

Read More:

Key EURUSD Scalp Targets Heading Into ECB / NFPs

Gold Trading Around Year Open; Bottoming Process?

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)

OCT 2014

11/07/2014 13:30 GMT

235K

214K

+21

+66

October 2014 U.S. Non-Farm Payrolls

EUR/USD Chart

U.S. Non-Farm Payrolls (NFPs) increased another 214K in October following a revised 256K expansion the month prior, marking the consecutive 9th month with an employment increase over 200K. Despite the weaker-than-expected print, the unemployment rate unexpectedly slipped to an annualized 5.8% from 5.9% during the same period to mark the lowest reading since August 2008. Moreover, the report continued to highlight anemic wage growth as Average Hourly Earnings held steady at 2.0%, and the subdued outlook for inflation may encourage the Fed to retain its highly accommodative policy stance for an extended period of time in an effort to foster a stronger recovery. The greenback largely struggled to hold its ground following the mixed print as EUR/USD held above the 1.2400 handle going into the European close, with the pair ending the day at 1.2453.

--- 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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