EUR/USD Rebound Vulnerable to Upbeat Non-Farm Payroll (NFP) Report
- U.S. Non-Farm Payrolls to Print Below 200K for First Time Since May.
- Average Hourly Earnings to Slow for First Since March.
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Trading the News: U.S. Non-Farm Payrolls (NFP)
A 180K expansion in U.S. Non-Farm Payrolls (NFP) accompanied by a downtick in the jobless rate may trigger a near-term decline in EUR/USD as the ongoing improvement in the labor market puts increased pressure on the Federal Open Market Committee (FOMC) to raise the benchmark interest rate sooner rather than later.
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Why Is This Event Important:
The next interest-rate decision on September 21 may reveal a growing dissent within the FOMC as Chair Janet Yellen argues ‘the case for an increase in the federal funds rate has strengthened in recent months,’ but a marked slowdown in Average Hourly Earnings may drag on interest-rate expectations as the committee persistently warns ‘most survey-based measures of longer-run inflation expectations were little changed, on balance, while market-based measures of inflation compensation remained low.’
Expectations: Bullish Argument/Scenario
|Pending Home Sales (MoM) (JUL)||0.7%||1.3%|
|Housing Starts (MoM) (JUL)||-0.8%||2.1%|
|NFIB Small Business Optimism (JUL)||94.5||94.6|
The pickup in business confidence paired with the resilience in the U.S. housing market may foster a stronger-than-expected NFP report, and a positive development may spark a bullish reaction in the dollar as it boosts bets for an imminent rate-hike.
Risk: Bearish Argument/Scenario
|ISM Manufacturing (AUG)||52.0||49.4|
|Gross Domestic Product (Annualized) (QoQ) (2Q P)||1.1%||1.1%|
|Advance Retail Sales (JUL)||0.4%||0.0%|
However, slowing outputs paired with the weakening outlook for global growth may drag on job/wage growth, and a series of dismal data prints may produce near-term headwinds for the greenback as it raises the Fed’s scope to further delay the normalization cycle.
How To Trade This Event Risk(Video)
Bullish USD Trade: NFP Expands 180K or Greater
- Need red, five-minute candle following the print to consider a short EUR/USD position.
- 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. Job/Wage growth Disappoints
- 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
- Failure to preserve the bullish formation from the end of July may spur a larger decline in EUR/USD especially as the Relative Strength Index (RSI) follows suit, with a break/close below 1.1110 (50% retracement), which also lines up with the 200-Day SMA (1.1114), raising the risk for a move back towards the July low (1.0951).
- 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. NFP report has had on EUR/USD during the previous release
|Period||Data Released||Estimate||Actual||Pips Change||Pips Change|
|JUL 2016||08/05/2016 12:30 GMT||180K||255K||-82||-59|
July 2016 U.S. Non-Farm Payrolls (NFP)
U.S. Non-Farm Payrolls (NFP) increased another 255K in July following the revised 292K expansion the month prior, while the jobless rate held steady at an annualized 4.9% as the Labor Force Participation Rate climbed to 62.8% from 62.7% during the same period. Moreover, Average Hourly Earnings crossed the wires at an annualized 2.6% to mark the fastest pace of growth for 2016, while a separate report showed the U.S. Trade Balance deficit widened to $44.5B from a revised $41.0B in May. The greenback advanced following the better-than-expected print, with EUR/USD slipping below the 1.1100 handle to end the day at 1.1082.
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--- Written by David Song, Currency Analyst
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