EUR/USD Rebound to Fizzle on Strong U.S. NFP Report
- U.S. Non-Farm Payrolls (NFP) to Expand 200+K for Third Month.
- Average Hourly Earnings to Increase Annualized 2.8%- Fastest Pace of Growth Since Series Began in 2010.
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Trading the News: U.S. Non-Farm Payrolls
Another 200K expansion in Non-Farm Payrolls (NFP) paired with a meaningful pickup in U.S. wage growth may trigger a short-term selloff in EUR/USD as it puts increased pressure on the Federal Open Market Committee (FOMC) to further normalize monetary policy in 2016.
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Why Is This Event Important:
Despite the cautious tone laid out in the Fed Minutes, a further improvement in labor market conditions may encourage the committee to adopt a more hawkish tone at the January 27 interest rate decision as Chair Janet Yellen remains confident in achieving the 2% inflation goal over the policy horizon.
Expectations: Bullish Argument/Scenario
|Challenger Job Cuts (YoY) (DEC)||--||-27.6%|
|ADP Employment (DEC)||198K||257K|
|Gross Domestic Product (Annualized) (QoQ) (3Q F)||1.9%||2.0%|
Fed forecasts for a stronger recovery accompanied by the ongoing decline in planned job-cuts may spur a further improvement in the labor market, and a positive employment report may boost the appeal of the greenback and fuel bets for higher borrowing-costs as Fed officials largely retain an upbeat outlook for the region.
Risk: Bearish Argument/Scenario
|ISM Non-Manufacturing (DEC)||56.0||55.3|
|ISM Manufacturing (NOV)||49.0||48.2|
|Advance Retail Sales (MoM) (NOV)||0.3%||0.2%|
However, the slowdown in business outputs along with the persistent weakness in private-sector consumption may drag on job growth, and a dismal NFP print may prompt the FOMC to endorse a wait-and-see approach in an effort to mitigate the downside risk for growth and inflation.
How To Trade This Event Risk(Video)
Bullish USD Trade: NFP Climb Another 200K or Greater, Wage Growth Picks Up
- 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: 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.
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Potential Price Targets For The Release
Chart - Created Using FXCM Marketscope 2.0
- Long-term outlook for EUR/USD remains tilted to the downside amid the deviating paths for monetary policy but, failure to preserve the bearish setup carried over from the previous month may highlight a larger correction in the exchange rate.
- The DailyFX Speculative Sentiment Index (SSI) shows retail crowd flipped net-short EUR/USD on January 6, but the ratio holds near recent extremes as it sits at -1.31, with 43% of traders now long.
- Interim Resistance: 1.1052 (November high) to 1.1090 (50% retracement)
- Interim Support: Interim Support: 1.0380 (78.6% expansion) to 1.0410 (61.8% 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|
|NOV 2015||12/04/2015 13:30 GMT||200K||211K||-1||-49|
November 2015 U.S. Non-Farm Payrolls
The U.S. economy added another 211K jobs in November following a revised 298K expansion the month prior. The unemployment remained unchanged at an annualized 5.0% even though the participation rate unexpectedly widened to 62.5% from 62.4% in October, while U.S. wage growth fell short of market expectations as Average Hourly Earnings slowed to an annualized rate of 2.3% from 2.5%, the fastest pace of growth since the data series began in 2010. The ongoing improvement in the labor market may put increased pressure on the Fed to layout a more detailed exit strategy over the coming months especially as the U.S. economy approaches ‘full-employment.’ The initial market reaction was short-lived, with EUR/USD bouncing to 1.0950 before ending the session at 1.0874.
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--- Written by David Song, Currency Analyst and Shuyang Ren
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