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EUR/USD to Inch Towards December High on Lackluster NFP Report

EUR/USD to Inch Towards December High on Lackluster NFP Report

David Song, Strategist

- U.S. Non-Farm Payrolls to Increase Less Than 200K for Second Straight Month.

- Unemployment Rate to Hold Steady at Annualized 4.7%, Average Hourly Earnings to Slow to 2.8%.

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

Mixed expectations surrounding the U.S. Non-Farm Payrolls (NFP) report may generate a choppy market reaction as the economy is projected to add 175K jobs in January, while wage growth is anticipated to slow from the fastest pace of growth since 2009. Nevertheless, with Fed Fund Futures still pricing a greater than 60% for a June rate-hike, a series of positive developments may heighten the appeal of the greenback as the Federal Reserve appears to be on course to further normalize monetary policy in 2017.

What’s Expected:

DailyFX Calendar

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Why Is This Event Important:

Indeed, the recent rhetoric from the Federal Open Market Committee (FOMC) suggests the central banks is in no rush to implement higher borrowing-costs as inflation continues to run below the 2% target, and another batch of lackluster data prints may produce near-term headwinds for the greenback as it dampens bets for a March rate-hike. In turn, the Fed may try to tame market expectations and buy more time as officials warn ‘market-based measures of inflation compensation remain low; most survey-based measures of longer-term inflation expectations are little changed, on balance,’ but signs of stronger job/wage growth may heighten the appeal of the U.S. dollar as it puts increased pressure on Chair Janet Yellen and Co. to raise the benchmark interest rate sooner rather than later.

Expectations: Bullish Argument/Scenario

Release

Expected

Actual

ISM Manufacturing (JAN)

55.0

56.0

Industrial Production (MoM) (DEC)

0.6%

0.8%

NFIB Small Business Optimism (DEC)

99.5

105.8

Improved confidence accompanied by the pickup in business outputs may generate a better-than-expected NFP report, and a positive development may trigger a bullish reaction in the U.S. dollar as it boosts interest rate expectations.

Risk: Bearish Argument/Scenario

Release

Expected

Actual

Durable Goods Orders (DEC P)

2.5%

-0.4%

Existing Home Sales (MoM) (DEC)

-1.6%

-2.8%

Advance Retail Sales ex. Auto (MoM) (DEC)

0.5%

0.2%

Nevertheless, the slowdown in private-sector consumption may drag on job/wage growth, and a weakening outlook for the U.S. labor market may spur losses for the greenback as it encourages the Federal Reserve to delay its normalization cycle.

For More Updates, Join DailyFX Currency Analyst David Song for LIVE Analysis!

How To Trade This Event Risk(Video)

Bullish USD Trade: NFP Report Exceeds Market Expectations

  • 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: U.S. Job/Wage Growth Disappoints

  • 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

EUR/USD Daily Chart

Chart - Created Using Trading View

  • EUR/USD continues to inch towards the December high (1.0873) after closing above the Fibonacci overlap around 1.0780 (100% expansion) to 1.0790 (38.2% expansion) earlier this week, but the recent developments in the Relative Strength Index (RSI) highlights the risk for a near-term exhaustion as the oscillator appears to be responding to the downward trend carried over from 2015; need the RSI to break the bullish formation from November to see EUR/USD reestablish the long-term downward trend.
  • Interim Resistance: 1.0880 (61.8% expansion) to 1.0910 (38.2% expansion)
  • Interim Support: 1.0340 (2017-low) and 1.0370 (38.2% expansion)

Check out the short-term technical levels that matter for EUR/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)

DEC

2016

01/06/2016 13:30 GMT

175K

156K

-34

-56

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

EUR/USD 5-Minute

EUR/USD Chart

U.S. Non-Farm Payrolls (NFP) increased 156K in December following a revised 204K expansion the month prior, while the jobless rate climbed to an annualized 4.7% from 4.6% during the same period amid an uptick in the Labor Force Participation Rate. At the same time, Average Hourly Earnings grew 2.9% per annum to mark the fastest pace of growth since 2009, and the ongoing improvement in labor market dynamics may keep the Federal Reserve on course to further normalize monetary policy in 2017 as Chair Janet Yellen sees the central bank ‘closing in’ on its dual mandate. Despite the slew of mixed data prints, the U.S. dollar gained ground following the pickup up in wage growth, with EUR/USD pushing below the 1.0550 region to end the day at 1.0532.

If you’re looking for trading ideas, check out our Trading Guides.

Read More:

DailyFX Roundtable: BoJ, Fed and BoE Preview

GBP/USD to Take Cues From FOMC/BoE Interest Rate Outlook

Technical Weekly: Is USD/CHF the Tell?Gold Prices Back Below 1200- Here’s the Game Plan

--- Written by David Song, Currency Analyst

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

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

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