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EUR/USD Rebound to Fizzle on Strong U.S. NFP Report

EUR/USD Rebound to Fizzle on Strong U.S. NFP Report

David Song, Shuyang Ren,

- 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.

What’s Expected:


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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)198K257K
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)56.055.3
ISM Manufacturing (NOV)49.048.2
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


EUR/USD Daily Chart

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

PeriodData ReleasedEstimateActualPips ChangePips Change
NOV 201512/04/2015 13:30 GMT200K211K-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.

Read More:

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Trading Opportunities of 2016: Key Currency Crosses to Watch amid the Diverging Paths for Monetary Policy

Avoid the pitfalls of trading by steering clear of classic mistakes. Review these principles in the "Traits of Successful Traders" series.

--- Written by David Song, Currency Analyst and Shuyang Ren

To contact David, e-mail Follow me on Twitter at @DavidJSong.

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