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EUR/USD Rebound to Unravel on Upbeat U.S. NFP Report

EUR/USD Rebound to Unravel on Upbeat U.S. NFP Report

David Song, Shuyang Ren,

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

- Average Hourly Earnings to Hold Steady at Annualized 2.5% for Second Month.

For more updates, sign up for David's e-mail distribution list.

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

Another 195K expansion in Non-Farm Payrolls (NFP) may heighten the appeal of the greenback and spur a near-term decline in EUR/USD as the ongoing improvement in the labor market puts increased pressure on the Federal Open Market Committee (FOMC) to further normalize monetary policy in 2016.

What’s Expected:

EUR/USD NFP

Click Here for the DailyFX Calendar

Why Is This Event Important:

With the U.S. economy approaching ‘full-employment,’ signs of sticky wage growth may encourage the FOMC to implement higher borrowing-costs over the coming months as Chair Janet Yellen remains confident in achieving the 2% inflation-target over the policy horizon.

Expectations: Bullish Argument/Scenario

Release

Expected

Actual

ADP Employment (FEB)

190K

214K

Personal Spending (JAN)

0.3%

0.5%

Advance Retail Sales (MoM) (JAN)

0.1%

0.2%

The pickup in private-sector consumption may prompt U.S. firms to expand their labor force as it remains one of the leading drivers of growth, and signs of stronger job/wage growth may generate a bullish reaction in the greenback as it boosts interest-rate expectations.

Risk: Bearish Argument/Scenario

Release

Expected

Actual

ISM Non-Manufacturing (Employment) (FEB)

--

49.7

Challenger Job Cuts (YoY) (FEB)

--

21.8%

NFIB Small Business Optimism (JAN)

94.5

93.9

Nevertheless, waning business confidence accompanied by fears of a slowing recovery may drag on hiring, and a dismal NFP report may produce increased headwinds for the dollar as market participants push out bets for the next Fed rate-hike.

How To Trade This Event Risk(Video)

Bullish USD Trade: NFP Climbs 195K+ Accompanied by Sticky Wage Growth

  • 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 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 the opposite direction.

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Potential Price Targets For The Release

EURUSD Daily

EUR/USD Daily Chart

Chart - Created Using FXCM Marketscope 2.0

  • EUR/USD may continue to consolidate within the 2015 range following the failed run at the October high (1.1494), but the pair stands at risk of facing near-term headwinds as market participants anticipate the European Central Bank (ECB) to implement more non-standard measures at the March 10 interest rate decision.
  • Interim Resistance: 1.1510 (50% retracement) to 1.1520 (61.8% expansion)
  • Interim Support: Interim Support: 1.0380 (78.6% expansion) to 1.0410 (61.8% expansion)

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

EUR/USD SSI
  • The DailyFX Speculative Sentiment Index (SSI) shows the retail crowd as been net-long EUR/USD since February 26, but the ratio continues to come off of recent extremes after climbing above the +1.00 in March.
  • The ratio has narrowed to +1.01 ahead of the NFP report as 50% of traders are currently long, with short positions 10.3% lower from the previous week.

Why and how do we use the SSI in trading? View our video and download the free indicator here

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)

JAN 2016

02/05/2015 13:30 GMT

190K

151K

-75

-58

January 2016 U.S. Non-Farm Payrolls

EUR/USD Chart

U.S. Non-Farm Payrolls (NFP) increased 151K after advancing a revised 262K the month prior, while the unemployment rate unexpectedly narrowed to an annualized 4.9% from 5.0% during the same period to mark the lowest since February 2008. Moreover, the Labor Force Participation Rate increased to 62.7% to meet market expectations, while Average Hourly Earnings crossed the wires at 2.5% amid forecasts for a 2.2% clip. Despite the lackluster NFP print, the ongoing improvement in labor dynamics accompanied by sticky wage growth may put increased pressure on the Fed to implement higher borrowing-costs especially as the U.S. economy approaches ‘full-employment.’ The greenback gained ground following the NFP report, with EUR/USD struggling to hold above the 1.1200 handle and ending the day at 1.1151.

Read More:

Another Big Test Awaits USD/CAD

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USD/JPY Technical Analysis: The Core FX Pair In The Risk ParadigmUSDOLLAR: Key Levels to Know Heading into NFPs, March Open

Get our top trading opportunities of 2016 HERE

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 dsong@dailyfx.com. Follow me on Twitter at @DavidJSong.

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DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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