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US Non-Farm Payrolls (NFP) Preview: USD Outlook Hinges on Wage Growth

US Non-Farm Payrolls (NFP) Preview: USD Outlook Hinges on Wage Growth

2018-05-04 08:00:00
David Song, Strategist
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Trading the News: U.S. Non-Farm Payrolls (NFP)

  • U.S. Non-Farm Payrolls (NFP) to Increase 193K in April, Average Hourly Earnings to Hold Steady at Annualized 2.7%.
  • EUR/USD Struggles to Extend Bearish Sequence Following Federal Open Market Committee (FOMC) Meeting. Relative Strength Index (RSI) in Focus.
Image of Non Farm Payrolls expectations

Updates to the U.S. Non-Farm Payrolls (NFP) report may boost the appeal of the greenback as the economy is anticipated to add 193K jobs in April.

A further improvement in labor market dynamics may heighten the appeal of the U.S. dollar as it puts pressure on the Federal Open Market Committee (FOMC) to act at the next quarterly meeting in June, and Chairman Jerome Powell and Co. may show a greater willingness to deliver four rate-hikes in 2018 as the U.S. economy approaches full-employment.

However, another 2.7% print for Average Hourly Earnings may produce a mixed reaction as it limits the threat for above-target inflation, and FOMC officials may continue to project a neutral Fed Funds rate of 2.75% to 3.00% as ‘inflation on a 12-month basis is expected to run near the Committee's symmetric 2 percent objective over the medium term.Sign up and join DailyFX Currency Analyst David Song LIVE to cover the NFP report.

Impact that the NFP report has 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)

MAR

2018

04/06/2018 12:30:00 GMT

185K

103K

+47

+49

March 2018 U.S. Non-Farm Payrolls (NFP)

EUR/USD 5-Minute Chart

Image of reaction to last NFP report

The U.S. economy added 103K jobs in March following a 326K expansion the month prior, while the jobless rate held steady at an annualized 4.1% during the same period amid forecasts for a 4.0% print. A deeper look at the report showed the Labor Force Participation Rate narrowing to 62.9% from 63.0%, while Average Hourly Earnings bounced back during the same period, with the index increasing to 2.7% per annum from 2.6% in February.

The lackluster developments dragged on the greenback, with EUR/USD rising above the 1.2250 region to end the day at 1.2279. Review the DailyFX Advanced Guide for Trading the News to learn our 8 step strategy.

EUR/USD Daily Chart

Image of EURUSD daily chart
  • Near-term outlook for EUR/USD remains tilted to the downside as the pair continues to carve a string of lower highs, but the recent decline in the exchange rate appears to be stalling as the Relative Strength Index (RSI) attempts to bounce back from oversold territory.
  • Need a break/close below the 1.1960 (38.2% retracement) to 1.1970 (23.% expansion) region to favor a run at the 2018-low (1.1916), but lack of momentum to clear the stated region may generate a rebound in the exchange rate.
  • First topside region of interest coming in around 1.2060 (50% retracement) followed by the Fibonacci overlap around 1.2140 (50% retracement) to 1.2170 (61.85 retracement).

For more in-depth analysis, check out the Q2 Forecast for EUR/USD

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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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