- U.S. Non-Farm Payrolls to Increase Less Than 200K for Third Consecutive Month.
- Unemployment Rate to Rebound to Annualized 4.7%, Average Hourly Earnings to Expand 2.8%.
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Trading the News: U.S. Non-Farm Payrolls (NFP)
A 175K rise in U.S. Non-Farm Payrolls (NFP) may boost the appeal of the greenback and undermine the near-term recovery in EUR/USD as it puts increased pressure on the Federal Open Market Committee (FOMC) to further normalize monetary policy in 2017.
What’s Expected:
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Why Is This Event Important:
After voting unanimously to raise the benchmark interest rate at the December 14 meeting, Chair Janet Yellen and Co. appear to be on course to implement higher borrowing-costs as the central bank warns ‘if the labor market appeared to be tightening significantly more than expected, it might become necessary to adjust the Committee's communications about the expected path of the federal funds rate, consistent with the possibility that a less gradual pace of increases could become appropriate.’ Indeed, a further improvement in labor market dynamics may prompt central bank officials to adopt a more hawkish outlook for monetary policy, but the 2017-rotation within the FOMC may push the committee to endorse a wait-and-see approach at the February 1 interest rate decision as officials argue ‘market-based measures of inflation compensation had moved up considerably but still were low; most survey-based measures of longer-term inflation expectations were little changed on balance.’
Expectations: Bullish Argument/Scenario
| Release | Expected | Actual |
|---|---|---|
| ISM Manufacturing (DEC) | 53.8 | 54.7 |
| Gross Domestic Product (Annualized) (QoQ) (3Q F) | 3.3% | 3.5% |
| NFIB Small Business Optimism (NOV) | 96.7 | 98.4 |
Increased outputs paired with the improvement in business confidence may fuel a further pickup in U.S. employment, and a positive development may generate a bullish reaction in the greenback as it puts increased pressure on the FOMC to further normalize policy in 2017.
Risk: Bearish Argument/Scenario
| Release | Expected | Actual |
|---|---|---|
| Challenger Job Cuts (YoY) (DEC) | -- | 42.4% |
| Advance Retail Sales (MoM) (NOV) | 0.2% | -0.4% |
| Consumer Credit (OCT) | $18.650B | $16.018B |
Nevertheless, the rise in planned job-cuts accompanied by the slowdown in household spending may drag on the labor market, and a weaker-than-expected NFP print may keep the dollar under pressure as it weighs on interest-rate expectations.
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How To Trade This Event Risk(Video)
Bullish USD Trade: U.S. Employment Increases 175K or Greater
- Need red, five-minute candle following the NFP 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: NFP Report Falls Short of Market Expectations
- Need green, five-minute candle to favor a long EUR/USD position.
- Implement same setup as the bullish dollar trade, just in the opposite direction.
Potential Price Targets For The Release
EUR/USD Daily
Chart - Created Using Trading View
- Broader outlook for EUR/USD remains tilted to the downside as the pair preserves the downward trend carried over from the previous year, but the string of failed attempts to close below 1.0370 (38.2% expansion) raises the risk for a larger correction especially as the Relative Strength Index (RSI) carves a near-term bullish formation.
- Interim Resistance: 1.0780 (100% expansion) to 1.0800 (23.6% retracement)
- Interim Support: 1.0300 pivot and 1.0370 (38.2% expansion)
Impact that the U.S. NFP reporthas had on EUR/USD during the previous release
| Period | Data Released | Estimate | Actual | Pips Change | Pips Change |
|---|---|---|---|---|---|
NOV 2016 | 12/02/2016 13:30 GMT | 180K | 178K | +4 | +14 |
November 2016 U.S. Non-Farm Payrolls (NFP)
EUR/USD 5-Minute
The U.S. economy added another 178K jobs in November following a 142K expansion the month prior, while the Unemployment Rate unexpectedly narrowed to an annualized 4.6% from 4.9% during the same period as the Labor Force Participation Rate slipped to 62.7% from 62.8% in October. At the same time, Average Hourly Earnings slowed to an annualized 2.5% from 2.8%, but the Federal Reserve appears to be on course to further normalize monetary policy over the coming months as ‘the Committee judges that the case for an increase in the federal funds rate has continued to strengthen.’ The slew of mixed data prints sparked a lackluster market reaction in the greenback, with EUR/USD edging higher ahead of the weekend to end the day at 1.0657.
Get our top trading opportunities of 2016 HERE
Read More:
January Forex Seasonality Sees Further US Dollar Strength to Start the Year
USD/JPY Technical Analysis: Swing Chart Showing Pull Back Developing
Trends to Extend; S&P 500, EURUSD & Gold/Silver Prices
DAX: Top-side Levels in Sight for Early January
--- Written by David Song, Currency Analyst
To contact David, e-mail dsong@dailyfx.com. Follow me on Twitter at @DavidJSong.
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