- 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.
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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:
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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
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)
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- 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.
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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 |
|---|---|---|---|---|---|
| JAN 2016 | 02/05/2015 13:30 GMT | 190K | 151K | -75 | -58 |
January 2016 U.S. Non-Farm Payrolls
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:
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--- 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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