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Strong Non-Farm Payrolls (NFP) Report to Fuel EUR/USD Weakness

Strong Non-Farm Payrolls (NFP) Report to Fuel EUR/USD Weakness

David Song, Strategist

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

- Average Hourly Earnings to Increase Annualized 2.4%- Highest Print Since December 2015.

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

Another 200K expansion in Non-Farm Payrolls (NFP) accompanied by a downtick in the jobless rate may boost the appeal of the greenback and spur a larger pullback in EUR/USD as it boosts interest-rate expectations.

What’s Expected:

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Why Is This Event Important:

With the U.S. economy approaching ‘full-employment,’ a further improvement in the labor market paired with signs of stronger wage growth may put increased pressure on the Federal Open Market Committee (FOMC) to raise the benchmark interest rate at the next quarterly meeting in June as the central bank risks falling behind the curve.

Expectations: Bullish Argument/Scenario

ReleaseExpectedActual
ISM Non-Manufacturing (APR)54.855.7
Markit Purchasing Manager Index- Services (APR F)52.152.8
Personal Income (MAR)0.3%0.4%

Data prints pointing to stronger-than-expected recovery may generate a further improvement in labor market dynamics, and a positive development may generate a bullish reaction in the greenback should it fuel speculation for a June Fed rate-hike.

Risk: Bearish Argument/Scenario

ReleaseExpectedActual
Personal Spending (MAR)0.1%0.0%
Advance Retail Sales (MAR)0.1%-0.3%
NFIB Small Business Optimism (FEB)93.592.6

Nevertheless, waning business confidence along with the slowdown in household consumption may prompt U.S. firms to scale back on hiring, and a dismal employment report may drag on the U.S. dollar as market participants push out bets for higher borrowing-costs.

How To Trade This Event Risk(Video)

Bullish USD Trade: NFP Expands 200K+, Jobless Rate Narrows

  • 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.

Potential Price Targets For The Release

EURUSD Daily

EUR/USD Daily Chart

Chart - Created Using FXCM Marketscope 2.0

  • Even though the diverging paths for monetary policy casts a long-term bearish outlook for EUR/USD, the pair may extend the advance from the previous month especially as it breaks out of the triangle/wedge formation carried over from back in March.
  • Interim Resistance: 1.1760 (61.8% retracement) to 1.1810 (38.2% retracement)
  • 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 EUR/USD heading into the report!

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

Impact that the U.S. Non-Farm Payrolls report has had on EUR/USD during the previous month

PeriodData ReleasedEstimateActualPips ChangePips Change
MAR 201604/01/2015 12:30 GMT205K215K-40-31

March 2016 U.S. Non-Farm Payrolls

EUR/USD Chart

The U.S. economy added another 215K jobs in March following a revised 245K expansion the month prior, while the jobless rate unexpectedly advanced to an annualized 5.0% from 4.9% as the Labor Force Participation Rate climbed to 63.0% from 62.9% during the same period. At the same time, Average Hourly Earnings also beat market expectations as the figure increased an annualized 2.3% during the same period amid forecasts for a 2.2% print. The greenback gained ground following the better-than-expected NFP report, with EUR/USD slipping below the 1.1400 handle to end the day at 1.1389.

Get our top trading opportunities of 2016 HERE

Read More:

Emotions Run High in Silver Trade

SPX500 Technical Analysis: Higher-Low Ahead of US Earnings

US DOLLAR Technical Analysis: Who’s Happier? Bears or Central Bankers

AUD/USD – Will the Real Trend Please Stand Up?

--- Written by David Song, Currency Analyst

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

To be added to David's e-mail distribution list, please follow this link.

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

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