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EUR/USD Rebound to Unravel on Robust US Non-Farm Payroll (NFP) Report

EUR/USD Rebound to Unravel on Robust US Non-Farm Payroll (NFP) Report

2016-11-04 08:00:00
David Song, Strategist
Share:

- U.S. Non-Farm Payrolls to Expand Less Than 200K for Third Consecutive Month.

- Unemployment Rate to Narrow to Annualized 4.9%; Average Hourly Earnings to Hold at 2.6%.

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Trading the News: U.S. Non-Farm Payrolls (NFP)

A 175K expansion in U.S. Non-Farm Payrolls (NFP) accompanied by a downtick in the jobless-rate may heighten the appeal of the greenback and spark a near-term pullback in EUR/USD should the report fuel speculation for an imminent Fed rate-hike.

What’s Expected:

DailyFX Calendar

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Why Is This Event Important:

Despite the 8 to 2 split within the Federal Open Market Committee (FOMC), Chair Janet Yellen and Co. appear to be following a similar path to 2015 as officials warn ‘that the case for an increase in the federal funds rate has continued to strengthen,’ and the dollar may outperform its major counterparts over the remainder of the year as the central bank takes a more collective approach in preparing U.S. households and businesses for higher borrowing-costs. However, a further reduction in the Fed’s long-run interest rate forecast may curtail the bullish outlook for the greenback as the committee argues ‘market-based measures of inflation compensation have moved up but remain low; most survey-based measures of longer-term inflation expectations are little changed, on balance, in recent months,’ and the permanent-voting members may continue to endorse a ‘gradual’ path in normalizing monetary policy as the central bank remains ‘data-dependent.’

Expectations: Bullish Argument/Scenario

Release

Expected

Actual

Factory Orders (SEP)

0.2%

0.3%

Personal Spending (SEP)

0.4%

0.5%

Advance Retail Sales (MoM) (SEP)

0.6%

0.6%

The pickup in private-sector consumption – one of the leading drivers of growth and inflation – may generate a strong employment report, and a positive development may trigger a bullish reaction in the U.S. dollar as it boosts bets for a December Fed rate-hike.

Risk: Bearish Argument/Scenario

Release

Expected

Actual

ISM Non-Manufacturing (OCT)

56.0

54.8

ADP Employment (OCT)

165K

147K

NFIB Small Business Confidence (SEP)

95.0

94.1

However, fading business confidence paired with the slowdown in service-based activity may drag on job/wage growth, and another dismal NFP release may fuel the near-term advance in EUR/USD as it drags on interest-rate expectations.

How To Trade This Event Risk(Video)

Bullish USD Trade: Employment Climbs 175K or Greater, Jobless Rate Narrows to 4.9%

  • 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. NFP Report Falls Short of Market Forecast

  • 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

Chart - Created Using Trading View

  • The recent series of higher highs & lows in EUR/USD may spur a test of trendline resistance especially as the Relative Strength Index (RSI) breaks out of the bearish formation, with a break/close above the Fibonacci overlap around 1.1090 (50% retracement) to 1.1110 (50% retracement) to open up the next topside area of interest around 1.1220 (61.8% retracement) to 1.1250 (61.8% retracement).
  • Interim Resistance: 1.1420 (23.6% retracement) to 1.1428 (June high)
  • Interim Support: 1.0780 (100% expansion) to 1.0800 (23.6% retracement)

Check out the short-term technical levels that matter for the U.S. Dollar Index (DXY) 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)

SEP

2016

10/07/2016 12:30 GMT

172K

156K

+54

+57

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

EUR/USD 5-Minute

EUR/USD Chart

U.S employment increased another 156K in September following a revised 167K expansion the month prior, while the jobless rate unexpectedly climbed to an annualized 5.0% from 4.9% as the Labor Force Participation Rate advanced to 62.9% from 62.8% during the same period. At the same time, Average Hourly Earnings climbed 2.6% per annum after rising 2.4% in August, and the pickup in wage growth may encourage the Federal Open Market Committee (FOMC) to implement a 2016 rate-hike especially as the economy approaches ‘full-employment.’ Nevertheless, the weaker-than-expected report dragged on the dollar, with EUR/USD bouncing back from 1.1117 to end the day at 1.1195.

Get our top trading opportunities of 2016 HERE

Read More:

S&P 500: Election Volatility and Short-term Trading Levels

Forex Technical Focus: AUD/JPY and a Big Confluence

USD/JPY Rally Vulnerable to Wait-and-See BoJ, 7 to 3 FOMC Split

NZD/USD at Risk for Further Losses Heading into U.S. 3Q GDP

--- Written by David Song, Currency Analyst

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

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