EUR/USD to Stage Near-Term Recovery on Dismal NFP Report
- U.S. Non-Farm Payrolls (NFP) to Rise Sub-200K for Fifth Time in 2016.
- Average Hourly Earnings to Hold Steady at Annualized 2.6%- Highest Print for 2016.
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Trading the News: U.S. Non-Farm Payrolls
Another 180K expansion in U.S. Non-Farm Payrolls (NFP) accompanied by a downtick in the jobless rate may boost the appeal of the greenback and trigger further losses in EUR/USD as it puts pressure on the Federal Open Market Committee (FOMC) to further normalize monetary policy in 2016.
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Why Is This Event Important:
Even though Fed Funds Futures highlight a 12% probability for a September rate-hike, a further improvement in labor market dynamics may encourage central bank officials to adopt a more hawkish outlook for monetary policy as the U.S. economy approaches ‘full-employment.’ However, an unexpected slowdown in wage growth may keep the FOMC on the sidelines throughout 2016 as the central bank warns ‘market-based measures of inflation compensation remain low; most survey-based measures of longer-term inflation expectations are little changed, on balance, in recent months.’
Expectations: Bullish Argument/Scenario
|Challenger Job Cuts (YoY) (JUL)||--||-57.1%|
|Advance Retail Sales (MoM) (JUN)||0.1%||0.6%|
|NFIB Small Business Optimism (JUN)||93.9||94.5|
The improvement in business confidence along with the pickup in private-sector consumption may generate a strong NFP print, and a positive development may generate a bullish reaction in the greenback should the data boost interest-rate expectations.
Risk: Bearish Argument/Scenario
|ISM Non-Manufacturing (JUL)||55.9||55.5|
|ISM Manufacturing (JUL)||53.0||52.6|
|Gross Domestic Product (Annualized) (QoQ) (2Q A)||2.5%||1.2%|
However, U.S. firms may scale back on hiring amid slowing outputs paired with signs of a weaker-than-expected recovery, and a dismal labor report may drag on the greenback 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
- EUR/USD may extend the rebound from the end of July following the string of failed attempts to close below the Fibonacci overlap around 1.0960 (23.6% retracement) to 1.0970 (38.2% retracement), while price & the Relative Strength Index (RSI) breakout of the bearish formations from earlier this year.
- 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 EUR/USD 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|
|JUN 2016||07/08/2016 12:30 GMT||180K||287K||-8||-25|
June 2016 U.S. Non-Farm Payrolls
U.S. Non-Farm Payrolls (NFP) surged 287K in June after climbing a revised 11K the month prior, while the jobless rate climbed to an annualized 4.9% from 4.7% as the Labor Force Participation Rate advanced to 62.7% from 62.6% during the same period. Nevertheless, Average Hourly Earnings rose to an annualized 2.6% amid forecasts for a 2.7% print, and the ongoing weakness in wage growth may encourage the Federal Open Market Committee (FOMC) to further delay the normalization cycle as central bank officials wait for evidence of stronger inflation. The initial market reaction was short lived, with EUR/USD climbing above the 1.1100 handle following the report, but the greenback regained its footing later in the day, with the pair closing the week at 1.1047.
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--- Written by David Song, Currency Analyst
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