- U.S. Non-Farm Payrolls (NFP) to Expand Less Than 200K for Fourth Consecutive Month.
- Average Hourly Earnings to Increase Annualized 2.7%- Highest Reading Since July 2009.
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Trading the News: U.S. Non-Farm Payrolls
Despite forecasts for an uptick in the U.S. Unemployment rate, a 180K expansion in Non-Farm Payrolls (NFP) accompanied by an uptick in the Labor Force Participation Rate may spur a near-term decline in EUR/USD as the world’s largest economy approaches ‘full-employment.’
What’s Expected:
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Why Is This Event Important:
A further improvement in labor market dynamics may put increased pressure on the Federal Open Market Committee (FOMC) to further normalize monetary policy in 2016, but the central bank may largely preserve a wait-and-see approach over the coming months as market-based measures of inflation compensation remain weak, while ‘most survey-based measures of longer-term inflation expectations are little changed.’
Expectations: Bullish Argument/Scenario
| Release | Expected | Actual |
|---|---|---|
| ADP Employment (JUN) | 160K | 172K |
| Challenger Job Cuts (YoY) (JUN) | -- | -14.1% |
| Advance Retail Sales (MoM) (MAY) | 0.3% | 0.5% |
The ongoing decline in planned job-cuts paired with the pickup in private-sector consumption, one of the leading drivers of growth and inflation, may prompt U.S. firms to boost hiring, and a positive development may spur a bullish reaction in the greenback as it fuels interest-rate expectations.
Risk: Bearish Argument/Scenario
| Release | Expected | Actual |
|---|---|---|
| Construction Spending (MoM) (MAY) | 0.6% | -0.8% |
| Industrial Production (MoM) (MAY) | -0.2% | -0.4% |
| Manufacturing Production (SIC) (MAY) | -0.1% | -0.4% |
Nevertheless, easing business outputs along with the slowdown in building activity may drag on the labor market, and another disappointing NFP report may produce 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 Increases 180K or More, Labor Force Participation Improves
- 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 Disappoints
- Need green, five-minute candle to favor a long EUR/USD trade.
- Implement same setup as the bullish dollar trade, just in reverse.
Potential Price Targets For The Release
EURUSD Daily
- Failure to preserve the bullish trend from back in December raises the risk for a further decline in EUR/USD especially as a bear-flag formation appears to be playing out, with a break/close below the Fibonacci overlap around 1.0960 (23.6% retracement) to 1.0970 (38.2% retracement) opening the door for a move back towards the 2016 low (1.0710).
- 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/CAD 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 |
|---|---|---|---|---|---|
| MAY 2016 | 06/03/2015 12:30 GMT | 160K | 38K | +156 | +205 |
May 2016 U.S. Non-Farm Payrolls
The U.S. economy added a mere 38K jobs in May to mark the slowest pace of job growth since 2010, while the unemployment rate unexpectedly narrowed to an annualized 4.7% from 5.0% as the Labor Force Participation Rate slipped to 62.6% from 62.8% during the same period. At the same time, Average Hourly Earnings held steady at an annualized 2.5% in May, and the marked slowdown in employment may push the Federal Open Market Committee (FOMC) to further delay its normalization cycle in an effort encourage a stronger recovery. The U.S. dollar sold off following the dismal report, with EUR/USD climbing above the 1.1300 handle to end the day at 1.1360.
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--- Written by David Song, Currency Analyst
To contact David, e-mail dsong@dailyfx.com. Follow me on Twitter at @DavidJSong.
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