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EUR/USD to Eye 1.0800 Support on Strong NFP Report

EUR/USD to Eye 1.0800 Support on Strong NFP Report

David Song, Shuyang Ren,

- U.S. Non-Farm Payrolls (NFP) to Expand 200+K for Third Consecutive Month.

- Unemployment Rate to Hold at Annualized 5.3%- Lowest Since 2008.

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

Another 225K expansion in U.S. Non-Farm Payrolls (NFP) may spur greater demand for the greenback and spark a near-term sell-off in EUR/USD should the fresh batch of data heighten speculation for a Fed rate hike at the September 17 meeting.

What’s Expected:

EUR/USD NFP

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Why Is This Event Important:

Despite the unanimous vote to retain the zero-interest rate policy (ZIRP) at the July 29 meeting, signs of a stronger recovery may generate a greater dissent within the Federal Open Market Committee (FOMC), and we may see a growing number of central bank officials talk up bets for a September liftoff should the employment report boost the outlook for growth and inflation.

Expectations: Bullish Argument/Scenario

ReleaseExpectedActual
ISM Non-Manufacturing (JUL)56.260.3
Existing Home Sales (MoM) (JUN)0.9%3.2%
Building Permits (MoM) (JUN)-8.0%7.4%

The ongoing expansion in service-based activity paired with pickup in the housing market may encourage a strong NFP print, and a better-than-expected release may spur a near-term rally in the greenback as it boosts interest rate expectations.

Risk: Bearish Argument/Scenario

ReleaseExpectedActual
ADP Employment Change (JUL)215K185K
NFIB Small Business Optimism (JUN)98.594.1
Advance Retail Sales (MoM) (JUN)0.3%-0.3%

However, waning business sentiment along with the ongoing weakness in private-sector spending may drag on job growth, and a dismal employment report may encourage the Fed to further delay its normalization cycle especially as Chair Janet Yellen looks for a further improvement in labor dynamics.

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How To Trade This Event Risk(Video)

Bullish USD Trade: U.S. Employment Increases 225K or Greater

  • Need red, five-minute candle following the NFP print to consider a short trade on EUR/USD.
  • If market reaction favors a bullish dollar trade, 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 Expectations

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

Potential Price Targets For The Release

EURUSD Daily

EUR/USD Daily Chart

Chart - Created Using FXCM Marketscope 2.0

  • Long-term outlook for EUR/USD remains bearish amid the divergence in the policy outlook, but the pair may continue to consolidate over the near-term as it remains stuck in the wedge/triangle formation from earlier this year.
  • DailyFX Speculative Sentiment Index (SSI) shows the retail crowd remains net-short EUR/USD since March 9, but the ratio appears to be working its way back towards recent extremes as it slips to -1.53 as 39% of traders are long.
  • Interim Resistance: 1.1180 (23.6% expansion) to 1.1210 (61.8% retracement)
  • Interim Support: 1.0790 (50% expansion) to 1.0800 (23.6% expansion)

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

PeriodData ReleasedEstimateActualPips ChangePips Change
JUN 201507/02/2015 12:30 GMT233K223K+25+23

June 2015 U.S. Non-Farm Payrolls

U.S. Non-Farm Payrolls(NFP) increased 223K in June following a revised 254K expansion the month prior, while the unemployment rate narrowed to an annualized 5.3% from 5.5% to mark the lowest reading since April 2008. However, the downtick in the jobless rate was accompanied by a decline in labor force participation as the rate slipped to 62.6% from 62.9% in June, while wage growth missed market estimates and unexpectedly slowed to 2.0% from 2.3% during the same period. Despite the ongoing improvement in the labor market, the ongoing slack in the real economy may prompt the Federal Reserve to further delay its normalization cycle as the central bank remains in no rush to remove its highly accommodative policy stance. The bearish reaction in the dollar failed to gather pace, with EUR/USD struggling to hold above the 1.1100 handle throughout the North American session to end the day at 1.1082.

--- 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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