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Upbeat Non-Farm Payroll (NFP) Report to Undermine EUR/USD Rebound

Upbeat Non-Farm Payroll (NFP) Report to Undermine EUR/USD Rebound

2017-03-10 08:00:00
David Song, Currency Strategist
Share:

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

- Unemployment Rate to Narrow to Annualized 4.7%, Average Hourly Earnings to Rebound.

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

The U.S. Non-Farm Payrolls (NFP) report may boost the appeal of the greenback and fuel speculation for a Fed rate-hike as the economy is expected to add another 200K jobs in February.

What’s Expected:

DailyFX Calendar

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Why Is This Event Important:

Healthy job gains accompanied by a rebound in Average Hourly Earnings may encourage the Federal Open Market Committee (FOMC) to raise the benchmark interest rate on March 15, and the central bank may stay on course to further normalize monetary policy in 2017 especially as the U.S. economy approaches ‘full-employment.’ However, signs of subdued wage growth may drag on interest rate expectations 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,’ and Chair Janet Yellen and Co. may talk down bets for a series of rate-hikes as ‘higher energy prices appear to have temporarily boosted inflation.’

Expectations: Bullish Argument/Scenario

Release

Expected

Actual

Personal Consumption (4Q P)

2.6%

3.0%

Advance Retail Sales (MoM) (JAN)

0.1%

0.4%

NFIB Small Business Optimism (JAN)

105.0

105.9

The ongoing improvement in business sentiment paired with the pickup in household consumption may generate an improved outlook for job/wage growth, and an upbeat NFP report may trigger a bullish reaction in the U.S. dollar as it puts increased pressure on the FOMC to implement higher borrowing-costs.

Risk: Bearish Argument/Scenario

Release

Expected

Actual

Consumer Credit (JAN)

$17.250B

$8.794B

Gross Domestic Product (Annualized) (4Q P)

2.1%

1.9%

Pending Home Sales (MoM) (JAN)

0.6%

-2.8%

Nevertheless, narrowing home sales accompanied by the slowdown in private-sector lending may prompt U.S. firms to scale back on hiring, and a dismal development may produce near-term headwinds for the greenback as it drags on interest-rate expectations.

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

How To Trade This Event Risk(Video)

Bullish USD Trade: NFP Increases 200K or Greater, Household Earnings Rebound

  • 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 Fall 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

EUR/USD Daily Chart

Chart - Created Using Trading View

  • Broader outlook for EUR/USD remains tilted to the downside as it preserves the downward trend carried over from the previous year, but the pair may stage a larger correction as the Relative Strength Index (RSI) breaks out of the bearish formation from earlier this year; failure to test the Fibonacci overlap around 1.0470 (38.2% expansion) to 1.0500 (50% expansion) may harbor range-bound conditions over the near-term as the euro-dollar exchange rate remains capped around 1.0660 (50% expansion) to 1.0680 (78.6% expansion).
  • 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)

JAN

2017

02/03/2016 13:30 GMT

180K

227K

+26

+50

January 2017 U.S. Non-Farm Payrolls (NFP)

EUR/USD 10-Minute

EUR/USD Chart

Chart - Created Using Trading View

U.S. Non-Farm Payrolls (NFP) increased another 227K jobs in January, with the jobless rate climbing to an annualized 4.8% from 4.7% as discouraged workers returned to the labor force. In turn, the participation rate unexpectedly widened to 62.9% per annum from 62.7%, while Average Hourly Earnings missed expectations, with the figure slipping to an annualized 2.5% from a revised 2.8% clip in December. Despite the pickup in job growth, the U.S. dollar struggled to hold its ground amid the ongoing weakness in household earnings, with EUR/USD gaining ground throughout the day to close the week at 1.0785.

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

Read More:

S&P 500 Technical Outlook: Narrow Channel, Gap in Focus

Technical Weekly: EUR/USD Long Term Chart Conditions Refresher

Silver Carnage Comes Quickly, Gold Tipped Its Hat; More Selling Likely

March Forex Seasonality Sees Neutral Month for USD After February Rebound

--- Written by David Song, Currency Analyst

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

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