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EUR/USD Losses to Accelerate on Robust U.S. NFP Report

EUR/USD Losses to Accelerate on Robust U.S. NFP Report

2016-10-07 08:00:00
David Song, Strategist
Share:

- 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.

For more updates, sign up for David's e-mail distribution list.

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.

What’s Expected:

DailyFX Calendar

Click Here for the DailyFX Calendar

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

Release

Expected

Actual

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

Release

Expected

Actual

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

EUR/USD Daily

EUR/USD Daily

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

(1 Hour post event )

Pips Change

(End of Day post event)

AUG

2016

09/02/2016 12:30 GMT

180K

151K

+30

-34

July 2016 U.S. Non-Farm Payrolls (NFP)

EUR/USD 5-Minute

EUR/USD Chart

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.

Get our top trading opportunities of 2016 HERE

Read More:

COT-4th Most Selling by CAD Speculators Since at Least 2002

FTSE 100: Bull Pattern Breakout to Start Q4

FX Technical Weekly: Don’t Get Caught Fading the Next EUR/USD Move

USD/JPY Technical Analysis: Fault Lines Are Showing Favoring JPY

--- Written by David Song, Currency Analyst

To contact David, e-mail dsong@dailyfx.com. Follow me on Twitter at @DavidJSong.

To be added to David's e-mail distribution list, please follow this link.

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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