EUR/USD Rebound Vulnerable to Strong NFP- 1.1300 Support in Focus
- U.S. Non-Farm Payrolls (NFP) to Expand 200+K for Twelve Consecutive Months.
- Average Hourly Earnings to Show the First Uptick Since July 2014.
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Trading the News: U.S. Non-Farm Payrolls
A 230K rise in U.S. Non-Farm Payrolls (NFP) accompanied by faster wage growth may heighten the appeal of the greenback and spur a short-term selloff in EUR/USD as it boosts expectations of seeing the Federal Open Market Committee (FOMC) normalize monetary policy in mid-2015.
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Why Is This Event Important:
Indeed, a further improvement in labor dynamics may put increased pressure on the Fed to raise the benchmark interest rate sooner-rather-than-later, but the subdued outlook for inflation may prompt the central bank to further delay its normalization cycle as price/wage growth remains weak.
Expectations: Bullish Argument/Scenario
|Personal Consumption (4Q A)||4.0%||4.3%|
|New Home Sales (MoM) (DEC)||2.7%||11.6%|
|NFIB Small Business Optimism (DEC)||98.5||100.4|
Improved business confidence along with the expansion in the housing market may generate a marked pickup in U.S. employment, and a positive development may heighten the bullish sentiment surrounding the greenback as a growing number of Fed official show a greater willingness to normalize monetary later this year.
Risk: Bearish Argument/Scenario
|Challenger Job Cuts (YoY) (JAN)||--||17.6%|
|Personal Spending (DEC)||-0.2%||-0.3%|
|Advance Retail Sales (DEC)||-0.1%||-0.9%|
However, the rise in planned job-cuts paired with the slowdown in private-sector consumption may generate a weaker-than-expected NFP print, and a dismal employment report may generate a larger correction in EUR/USD as it drags on interest rate expectations.
How To Trade This Event Risk(Video)
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Bullish USD Trade: Job/Wage Growth Exceeds Market 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: U.S. Employment Report Disappoints
- 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
Chart - Created Using FXCM Marketscope 2.0
- Long-term outlook for EUR/USD remains bearish as the RSI retains the downward trend carried over from back in October 2013.
- Interim Resistance: 1.1600 pivot to 1.6110 (61.8% expansion)
- Interim Support: 1.1300 (161.8% expansion) to 1.1310 (100% expansion)
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||Pips Change|
|DEC 2014||01/09/2015 13:30 GMT||240K||252K||-35||+25|
December 2014 U.S. Non-Farm Payrolls
U.S. Non-Farm Payrolls (NFPs) beat market forecasts as the economy added 252K jobs in December following an upwardly revised 353K expansion the month prior. At the same time, the unemployment rate narrowed more-than-expected to an annualized 5.6% to mark the lowest reading since August 2008. However, Average Hourly Earnings unexpectedly slowed to 1.7% during the same period amid forecasts for a 2.2% print, and the weakening outlook for inflation may push the Fed to further delay its normalization cycle as it struggles to achieve the 2% target for price growth. Nevertheless, the initial bullish reaction in the greenback was short-lived as EUR/USD worked its way back above the 1.1800 handle, with the pair ending the day at 1.1839.
--- Written by David Song, Currency Analyst and Shuyang Ren
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