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EUR/USD Consolidation at Risk- NFP to Shape Opening Monthly Range

EUR/USD Consolidation at Risk- NFP to Shape Opening Monthly Range

David Song, Shuyang Ren,

- U.S. Non-Farm Payrolls (NFP) to Expand 200+K for Sixth-Time in Last Nine Months.

- Unemployment Rate to Hold at Annualized 5.1%- Lowest Since 2008.

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

Another 201K expansion in U.S. Non-Farm Payrolls (NFP) may fuel demand for the greenback and spur a near-term sell-off in EUR/USD should the fresh batch of data boost bets for a 2015 Fed rate hike.

What’s Expected:

EUR/USD NFP

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Why Is This Event Important:

Indeed, a further improvement in the labor market may spark a greater dissent at the Federal Open Market Committee’s (FOMC) October 28 interest rate decision, and the dollar may trade on a firmer footing over the coming days should the data heighten speculation for higher borrowing-costs.

Expectations: Bullish Argument/Scenario

Release

Expected

Actual

ADP Employment Change (SEP)

190K

200K

Gross Domestic Product (Annualized) (QoQ) (2Q F)

3.7%

3.9%

Building Permits (MoM) (AUG)

2.5%

3.5%

The stronger-than-expected rebound in the second quarter accompanied by the expansion in building activity may encourage U.S. firms to increased their labor force, and a marked expansion in employment may put increased pressure on the FOMC to remove the zero-interest rate policy (ZIRP) as the economy approaches full-employment.

Risk: Bearish Argument/Scenario

Release

Expected

Actual

ISM Manufacturing (SEP)

50.6

50.2

Challenger Job Cuts (YoY) (SEP)

--

93.2%

Industrial Production (MoM) (SEP)

-0.2%

-0.4%

However, slowing production along with the rise in planned job-cuts may drag on job/wage growth, and a dismal NFP print may push the Fed to further delay its normalization cycle in an effort to further insulate the real economy.

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How To Trade This Event Risk(Video)

Bullish USD Trade: U.S. Employment Expands 201K 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: Job/Wage Growth Falls Short of Market Forecast

  • 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

  • Even though the ECB stands ready and willing to further embark on its easing cycle, EUR/USD may continue to congest in the days ahead as the pair retained the monthly opening range in September, while market participants treat the Euro as a ‘funding-currency.’
  • DailyFX Speculative Sentiment Index (SSI) shows the retail crowd remains net-short EUR/USD since March 9, but the ratio remains off of recent extremes as it currently holds at –1.25, with 45% of traders long.
  • Interim Resistance: 1.1760 (61.8% retracement) to 1.1810 (38.2% retracement)
  • Interim Support: Interim Support: 1.0790 (50% expansion) to 1.0800 (23.6% expansion)

Read More:

Price & Time: USDOLLAR Clear As Mud

ADP Employment Change Significant Beat Ahead of Non-Farm Payrolls

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 2015

09/04/2015 12:30 GMT

217K

173K

-29

-2

August 2015 U.S. Non-Farm Payrolls

EUR/USD Chart

U.S. Non-Farm Payrolls(NFP) fell short of market expectations as the economy added 173K jobs in June following a revised 245K expansion the month prior. At the same time, the unemployment rate dropped to a seven-year low of 5.1% even as the participation rate held steady at an annualized 62.6% for the third month, while private wages also exceeded market forecasts as Average Hourly Earnings climbed 2.2% amid forecasts for a 2.1% print. Indeed, the ongoing improvement in the labor market accompanied by strong wage growth may keep the Fed on course to raise the benchmark interest rate later this year as the central bank sees the economy on a firmer footing. As a result, EUR/USD dipped below the 1.1100 handle following the data print, but the greenback struggled to hold its ground throughout the North American session, with EUR/USD closing the day at 1.1144.

--- 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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