- 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:
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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.
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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
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 | Pips Change |
|---|---|---|---|---|---|
JAN 2017 | 02/03/2016 13:30 GMT | 180K | 227K | +26 | +50 |
January 2017 U.S. Non-Farm Payrolls (NFP)
EUR/USD 10-Minute
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.
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Read More:
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--- Written by David Song, Currency Analyst
To contact David, e-mail dsong@dailyfx.com. Follow me on Twitter at @DavidJSong.
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