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

A 190K expansion in U.S. Non-Farm Payrolls (NFP) may curb the recent rebound in EUR/USD as it puts pressure on the Federal Open Market Committee (FOMC) to adopt a more aggressive approach in normalizing monetary policy. However, the updates may spark a lackluster reaction as Average Hourly Earnings are expected to hold steady at an annualized 2.6% in May, and signs of stagnant wage growth may push Fed officials to adopt a less-hawkish tone over the coming months as ‘inflation on a 12-month basis is expected to run near the Committee's symmetric 2 percent objective over the medium term.

Image of DailyFX economic calendar

With that said, it will likely take a batch of above-forecast data prints to generate a bullish reaction in the greenback, and a further improvement in labor market dynamics may renew bets for four Fed rate-hikes in 2018 as ‘the Committee expects that economic conditions will evolve in a manner that will warrant further gradual increases in the federal funds rate.’

In contrast, indications of ongoing slack in the labor market may dampen the outlook for growth and inflation, and Chairman Jerome Powell & Co. may continue to project a neutral Fed Funds rate of 2.75% to 3.00% at the next quarterly meeting in June as ‘market-based measures of inflation compensation remain low.’

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

Period

Data Released

Estimate

Actual

Pips Change

(1 Hour post event )

Pips Change

(End of Day post event)

APR

2018

05/04/2018 12:30:00 GMT

193K

164K

-36

-2

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

EUR/USD 10-Minute Chart

Image of EURUSD 10-minute chart

The U.S. economy added 164K jobs in April following a revised 135K expansion the month prior, while Average Hourly Earnings climbed an annualized 2.6% during the same period amid forecasts for a 2.7% print. At the same time, the Unemployment Rate narrowed to an annualized 3.9% from 4.1% as the Labor Force Participation Rate unexpectedly slipped to 62.8% from 62.9% in March, with the data likely to have a limited impact on the monetary policy outlook amid the ongoing slack in the real economy.

The lackluster data prints sparked a mixed reaction in EUR/USD, with the pair bouncing back from 1.1910 to close the day at 1.1960. Learn more with the DailyFX Advanced Guide for Trading the News.

EUR/USD Daily Chart

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  • Break of the November-low (1.1554) keeps the broader outlook for EUR/USD tilted to the downside, while the Relative Strength Index (RSI) continues to track the bearish formation from earlier this year.
  • However, recent developments warn of a larger recovery in euro-dollar as the exchange rate carves a fresh string of higher highs & lows, while the oscillator comes off of oversold territory and approaches trendline resistance.
  • The Fibonacci overlap around 1.1790 (23.6% retracement) to 1.1810 (61.8% retracement) sits on the radar, with the next region of interest coming in around 1.1940 (23.6% retracement) to 1.1970 (23.6% expansion) followed by the 1.2060 (50% retracement) area.

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

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--- Written by David Song, Currency Analyst

Follow me on Twitter at @DavidJSong.