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EUR/USD to Stage Larger Pullback on Strong U.S. NFP Report

EUR/USD to Stage Larger Pullback on Strong U.S. NFP Report

David Song, Strategist

- U.S. Non-Farm Payrolls (NFP) to Rise 180K, Jobless Rate to Hold at Annualized 4.3%.

- Average Hourly Earnings to Increase for First Time Since February.

- Sign Up and Join the DailyFX Team LIVE to Cover the U.S. NFP Report.

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

U.S. Non Farm Payrolls

A 180K expansion in U.S. Non-Farm Payrolls (NFP) paired a pickup in household earnings may trigger a near-term pullback in EUR/USD as it puts pressure on the Federal Open Market Committee (FOMC) to further normalize monetary policy sooner rather than later.

Why Is This Event Important:

With the U.S. economy approaching full-employment, signs of higher wage growth may encourage Chair Janet Yellen and Co. to deliver three rate-hikes in 2017 as the central bank remains confident in reaching the 2% inflation-target over the policy horizon. In turn, the dollar may exhibit a more bullish behavior ahead of the next rate decision on September 20 as the ‘the Committee expects to begin implementing its balance sheet normalization program relatively soon.’

However, a lackluster NFP report may push the FOMC to buy more time as ‘many participants, however, saw some likelihood that inflation might remain below 2 percent for longer than they currently expected, and several indicated that the risks to the inflation outlook could be tilted to the downside.’ As a result, the broader shift in EUR/USD behavior may continue to unfold throughout the remainder of the year especially as the European Central Bank (ECB) appears to be on course to taper its asset-purchase program ahead of the December deadline.

Impact that the U.S. NFP report has had on EUR/USD during the last print

Period

Data Released

Estimate

Actual

Pips Change

(1 Hour post event )

Pips Change

(End of Day post event)

JUL

2017

08/04/2017 12:30:00 GMT

180K

209K

-29

-94

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

EUR/USD 5-Minute Chart

EUR/USD Chart

The U.S. economy added 209K jobs in July, with the jobless rate narrowing to an annualized 4.3% from 4.4% even as the Labor Force Participation Rate unexpectedly climbed to 62.9% from 62.8% during the same period. At the same time, Average Hourly Earnings held steady at 2.5% per annum amid forecasts for a 2.4% print, and the ongoing improvement in the labor market may keep the Federal Reserve on course to further normalize monetary policy over the coming months as region approaches full-employment. The dollar gained ground following the better-than-expected NFP report, with EUR/USD slipping below the 1.1800 handle to end the day at 1.1773.

How To Trade This Event Risk(Video)

Bullish USD Trade: U.S. Adds 180K Jobs or More, Wage Growth Picks in August

  • Need a red, five-minute candle subsequent to the fresh figures to consider a short EUR/USD position.
  • If the market reaction favors a bullish dollar trade, sell EUR/USD with two separate lots.
  • Set stop at the near-by swing high/reasonable distance from entry; look for at least 1:1 risk-to-reward.
  • Move stop to breakeven on remaining position once initial target is met, set reasonable limit.

Bearish USD Trade: NFP Report Falls Short of Market Expectations

  • Need a green, five-minute EUR/USD candle to consider a short dollar position.
  • Implement the same approach as the bullish dollar trade, just in the opposite direction.

Potential Price Targets For The Release

EUR/USD Daily Chart

EUR/USD Daily Chart

Check out our EUR/USD quarterly projections in our FREE DailyFX Trading Forecasts

  • EUR/USD stands at risk for a larger pullback as it carves a series of lower highs & lows after filling in the gap from January-2015 (1.2000 down to 1.1955), while the Relative Strength Index (RSI) appears to be deviating with prices as it fails to mark fresh 2017-highs.
  • The 1.1770 (100% expansion) region largely in focus as it lines up with trendline support, with the next downside hurdle coming in around 1.1670 (50% retracement), which coincides with the August-low (1.1662).
  • Interim Resistance: 1.2320 (23.6% retracement) to 1.2370 (61.8% expansion)
  • Interim Support: 1.1390 (61.8% retracement) to 1.1400 (61.8% expansion)

EUR/USD Retail Sentiment

EUR/USD Retail Sentiment

See how shifts in EUR/USD retail positioning are impacting trend- Click here to learn more about sentiment!

Retail trader data shows 37.6% of traders are net-long EUR/USD with the ratio of traders short to long at 1.66 to 1. In fact, traders have remained net-short since April 18 when EUR/USD traded near 1.08143; price has moved 9.9% higher since then. The number of traders net-long is 20.3% higher than yesterday and 19.2% higher from last week, while the number of traders net-short is 18.4% lower than yesterday and 21.2% lower from last week.

--- Written by David Song, Currency Analyst

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

To be added to David's e-mail distribution list, please follow this link

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

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