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EUR/USD Weakness to Persist on Upbeat Non-Farm Payrolls (NFP) Report

EUR/USD Weakness to Persist on Upbeat Non-Farm Payrolls (NFP) Report

2016-06-03 10:00:00
David Song, Strategist
Share:

- U.S. Non-Farm Payrolls (NFP) to Expand Less Than 200K for Third-Time in 2016.

- Average Hourly Earnings to Hold at Annualized 2.5%- Fastest Pace of Growth Since December.

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

A 160K expansion in U.S. Non-Farm Payrolls (NFP) paired with a downtick in the jobless rate may boost the appeal of the greenback and spur a larger pullback in EUR/USD as it fuels expectations for an imminent Fed rate-hike.

What’s Expected:

DailyFX Calendar

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Why Is This Event Important:

The Federal Open Market Committee (FOMC) may implement higher borrowing-costs over the coming months especially as the U.S. economy approaches ‘full-employment,’ but signs of stagnant wage growth may encourage the central bank to further delay its normalization cycle as officials warn ‘survey-based measures of longer-run inflation expectations were little changed, on balance, in recent months, while market-based measures of inflation compensation were still low.

Expectations: Bullish Argument/Scenario

Release

Expected

Actual

ADP Employment (MAY)

173K

173K

Personal Spending (APR)

0.7%

1.0%

Advance Retail Sales (MoM) (APR)

0.8%

1.3%

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

Risk: Bearish Argument/Scenario

Release

Expected

Actual

Construction Spending (MoM) (APR)

0.6%

-1.8%

Gross Domestic Product (Annualized) (QoQ) (1Q P)

0.9%

0.8%

Non-Defense Capital Goods Orders ex. Aircrafts (APR P)

0.3%

-0.8%

Nevertheless, fears of a slowing recovery accompanied by the ongoing weakness in business spending/investments may drag on the labor market, and a dismal NFP report may spark near-term headwinds for the dollar as market participants push out bets for a Fed rate-hike.

How To Trade This Event Risk(Video)

Bullish USD Trade: NFP Expands 160K+, Unemployment 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 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 Chart
  • Even though EUR/USD remains stuck in a narrow range, the longer-term upward trend may reassert itself over the coming days as price & the Relative Strength Index (RSI) fail to preserve the bearish formation from early May.
  • Key Resistance: 1.1760 (61.8% retracement) to 1.1810 (38.2% retracement)
  • Key Support: Interim Support: 1.0380 (78.6% expansion) to 1.0410 (61.8% expansion)

Check out the short-term technical levels that matter for USD/JPY 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

Period

Data Released

Estimate

Actual

Pips Change

(1 Hour post event )

Pips Change

(End of Day post event)

APR 2016

05/06/2015 12:30 GMT

200K

160K

-10

-41

April 2016 U.S. Non-Farm Payrolls

EUR/USD Chart

U.S. employment increased 160K in April following a revised 208K expansion the month prior, while the jobless rate held steady at an annualized 5.0% amid forecasts for a 4.9% print. At the same time, the Labor Force Participation Rate unexpectedly narrowed to 62.8% from 63.0%, while Average Hourly Earnings climbed an annualized 2.5% during the same period to beat expectations for a 2.4% advance. The initial advance in EUR/USD was short-lived, with the pair struggling to hold above the 1.1400 handle as it ended the day at 1.1398.

Get our top trading opportunities of 2016 HERE

Read More:

US DOLLAR Technical Analysis: Another Monthly Opening Range Worth Watching

Gold Prices in Free Fall- Shorts at Risk into NFP

EUR/GBP Breakdown Eyes Critical Support at 7520

GBP/USD Successful Re-Test of Former Resistance Line

--- 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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