EUR/USD Losses to Accelerate on Robust U.S. NFP Report
- U.S. Non-Farm Payrolls to Expand Less Than 200K for Second Consecutive Month.
- Unemployment Rate to Hold Steady at Annualized 4.9% for Third Straight Month.
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Trading the News: U.S. Non-Farm Payrolls (NFP)
Another 170K expansion in U.S. Non-Farm Payrolls (NFP) may fuel the near-term strength in the greenback and spark a bearish reaction in EUR/USD as it boost bets for a December Fed rate-hike.
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Why Is This Event Important:
It seems as though the Federal Open Market Committee (FOMC) is following a similar path to 2015 as central bank officials appear to be taking a more collective approach in preparing U.S. households and businesses for higher borrowing-costs, and the U.S. dollar may appreciate over the remainder of the year amid growing bets for a 2016 rate-hike. However, the reduction in the Fed’s long-run interest rate forecast may curtail the bullish outlook for the greenback as Chair Janet Yellen endorses a ‘gradual’ approach in removing the accommodative policy, and the 2017 voting-members may embrace a more dovish outlook for monetary policy as the committee struggles to achieve the 2% target for inflation.
Expectations: Bullish Argument/Scenario
|Challenger Job Cuts (YoY) (SEP)||--||-24.7%|
|Factory Orders (AUG)||-0.2%||0.2%|
|ISM Non-Manufacturing (Employment) (SEP)||--||57.2|
The ongoing decline in planned job-cuts accompanied by the expansion in service-based activity, one of the leading drivers of growth, may generate a stronger-than-expected NFP report, and a positive development may boost interest-rate expectations especially as the U.S. economy approaches ‘full-employment.’
Risk: Bearish Argument/Scenario
|Construction Spending (MoM) (AUG)||0.3%||-0.7%|
|Housing Starts (MoM) (AUG)||-1.7%||-5.8%|
|Advance Retail Sales (AUG)||-0.1%||-0.3%|
However, the slowdown in building activity paired with the weakness in household consumption may drag on job growth, and a dismal employment report may spark a near-term headwinds for the dollar as push out bets for the next Fed rate-hike.
How To Trade This Event Risk(Video)
Bullish USD Trade: NFP Climbs 172K 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. 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 the opposite direction.
Potential Price Targets For The Release
Chart - Created Using Trading View
- Will keep a close eye on the monthly opening range for EUR/USD as it appears to be breaking down from the triangle/wedge formation carried over from the end of summer, with a breach of the weekly low (1.1138) raising the risk for a more meaningful test of 1.1090 (50% retracement) especially as the Relative Strength Index (RSI) struggles to preserve the bullish formation from back in May.
- Interim Resistance: 1.1420 (23.6% retracement) to 1.1428 (June high)
- Interim Support: 1.0912 (June low) to 1.0940 (61.8% retracement)
Check out the short-term technical levels that matter for NZD/USD heading into the report!
Impact that the U.S. NFP reporthas had on EUR/USD during the previous release
|Period||Data Released||Estimate||Actual||Pips Change||Pips Change|
|09/02/2016 12:30 GMT||180K||151K||+30||-34|
July 2016 U.S. Non-Farm Payrolls (NFP)
The U.S. economy added another 151K jobs in August followed a revised 275K expansion the month prior, while the jobless rate held steady at an annualized 4.9% for the second consecutive month. The Labor Force Participation Rate once again printed at 62.8% during the same period, while Average Hourly Earnings narrowed to an annualized 2.4% amid forecasts for a 2.5% print. The initial weakness in the greenback was short-lived, with EUR/USD pulling back from the 1.1250 region to end the day at 1.1151.
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--- Written by David Song, Currency Analyst
To contact David, e-mail email@example.com. Follow me on Twitter at @DavidJSong.
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