- 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:
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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
- 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!
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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 |
|---|---|---|---|---|---|
| APR 2016 | 05/06/2015 12:30 GMT | 200K | 160K | -10 | -41 |
April 2016 U.S. Non-Farm Payrolls
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.
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