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EUR/USD to Extend Gains on Lackluster NFP, Subdued Wage Growth

EUR/USD to Extend Gains on Lackluster NFP, Subdued Wage Growth

2016-04-01 08:00:00
David Song, Currency Strategist
Share:

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

- Average Hourly Earnings to Hold Steady at Annualized 2.2%- Slowest Pace Since July.

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

Another 205K expansion in Non-Farm Payrolls (NFP) may heighten the appeal of the greenback and spur a near-term pullback in EUR/USD as it puts increased pressure on the Federal Open Market Committee (FOMC) to further normalize monetary.

What’s Expected:

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Why Is This Event Important:

However, market participants may pay increased attention to Average Hourly Earnings as the U.S. economy approaches ‘full-employment,’ and the ongoing weakness in private-sector wages may push the committee to further delay the normalization cycle as central bank officials highlight the downward tilt in inflation expectations.

Expectations: Bullish Argument/Scenario

Release

Expected

Actual

ADP Employment (MAR)

195K

200K

Gross Domestic Product (Annualized) (QoQ) (4Q F)

1.0%

1.4%

Real Personal Spending (FEB)

0.1%

0.2%

Signs of a stronger-than-expected recovery accompanied by the pickup in private-sector spending may encourage U.S. firms to expand their labor force, and a marked expansion in job/wage growth may boost interest-rate expectations as Fed officials project two rate-hikes for 2016.

Risk: Bearish Argument/Scenario

Release

Expected

Actual

Challenger Job Cuts (YoY) (MAR)

--

31.7%

NFIB Small Business Optimism (FEB)

94.0

92.9

Consumer Credit (JAN)

$17.000B

$10.538B

Nevertheless, waning business confidence paired with the rise in planned job-cuts may drag on labor market dynamics, and the dollar may face further losses over the near-term should the NFP report dampen the outlook for growth and inflation.

How To Trade This Event Risk(Video)

Bullish USD Trade: NFP Expands 205K+ 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 Labor Report Fails to Meet 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.

Potential Price Targets For The Release

EURUSD Daily

EUR/USD Daily Charts

Chart - Created Using FXCM Marketscope 2.0

  • Despite the divergence paths between the Federal Reserve and the European Central Bank (ECB), EUR/USD stands at risk of a further advance and may revisiting the highs from 2015 as it breaks above the February high (1.1375).
  • 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)

Check out the short-term technical levels that matter for USDOLLAR heading into the report!

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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

(1 Hour post event )

Pips Change

(End of Day post event)

FEB 2016

03/04/2015 12:30 GMT

195K

242K

+12

+30

February 2016 U.S. Non-Farm Payrolls

EUR/USD Chart

U.S. Non-Farm Payrolls (NFP) increased another 242K in February following a revised 172K expansion the month prior, while the jobless rate held steady at an annualized 4.9% for the second consecutive month. Moreover, the Labor Force Participation Rate climbed to 62.9% amid forecasts for a 62.8% print, while Average Weekly Earnings unexpectedly slowed to an annualized 2.2% from 2.5% in January to mark the slowest pace of growth since July. Despite the ongoing improvement in the labor market, the weakness in household earnings may encourage the Federal Reserve to further delay its normalization cycle as the central bank looks for a ‘consumer-led’ recovery in 2016. Despite the initial advance in the greenback, the market reaction was short-lived, with EUR/USD bouncing back from 1.0902 to end the day at the 1.1000 handle.

Read More:

USD/MXN – Big Support Test Coming Up

USD/CAD Technical Analysis: All Eyes on 1.2835

COT-Small Trader Net Long Position in AUD is Largest Since July 2014

USD/JPY-More at the 110.66 Low Than You Might Think

Get our top trading opportunities of 2016 HERE

--- Written by David Song, Currency Analyst

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

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