Lackluster Non-Farm Payrolls (NFP) Report to Stoke EUR/USD Rebound

Another 180K expansion in U.S. Non-Farm Payrolls (NFP) may trigger a near-term decline in EUR/USD as the ongoing improvement in the labor market encourages the Federal Open Market Committee (FOMC) to raise the benchmark interest rate sooner rather than later.

What’s Expected:

 

Why Is This Event Important:

The FOMC appears to be on course to further normalize monetary policy in 2017 as the U.S. economy approaches ‘full-employment,’ and it seem as though the central bank will start to unwind its balance sheet later this year as officials discuss ‘potential benefits and costs of approaches that would either phase out or cease all at once reinvestments of principal from these securities.’ However, Chair Janet Yellen and Co. may attempt to buy more time as the pickup in headline inflation is largely driven by higher energy prices, and Fed officials may continue to forecast a terminal fed funds rate close to 3.00% as ‘market-based measures of inflation compensation remain low; survey-based measures of longer-term inflation expectations are little changed, on balance.’

Expectations: Bullish Argument/Scenario

The pickup in building activity accompanied by the ongoing expansion in the housing market may generate a better-than-expected NFP report, and a marked improvement in labor market dynamics may spark a bullish reaction in the greenback as it boosts interest-rate expectations.

Risk: Bearish Argument/Scenario

However, easing business confidence paired with the slowdown in household spending may push U.S. firms to scale back on hiring, and a lackluster NFP report may produce near-term headwinds for the dollar as market participants push back bets for the next Fed rate-hike.

Bullish USD Trade: U.S. Job/Wage Growth Exceeds Market Expectations

• Need a 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: NFP Disappoints, Average Hourly Earnings Narrow in March

• Need green, five-minute candle to favor a long EUR/USD position.
• Implement same setup as the bullish dollar trade, just in reverse.

Potential Price Targets For The Release

EUR/USD Daily

 

Chart - Created Using Trading View

• The diverging paths for monetary policy keeps the broader outlook for EUR/USD tilted to the downside, with the pair at risk of giving back the advance from the previous month as it fails to preserve the upward trending channel from the March low (1.04895); may see the Relative Strength Index (RSI) highlight a bearish trigger as it comes up against trendline support, with a break opening up the next downside region of interest around 1.0600 (23.6% expansion) followed by 1.0470 (38.2% expansion) to 1.0500 (50% expansion).
• However, signs of weaker job/wage growth may prop up EUR/USD, with a move back above the Fibonacci overlap around 1.0660 (50% expansion) to 1.0680 (78.6% expansion) opening the next topside hurdle around 1.0780 (100% expansion) to 1.0790 (38.2% 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)

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

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

EUR/USD 5-Minute

Chart - Created Using Trading View

The U.S. economy added another 235K jobs in February, while the Unemployment Rate narrowed to an annualized 4.7% from 4.8% even as the Labor Force Participation rate climbed to 63.0% from 62.9% the month prior. Moreover, Average Hourly Earnings increased 2.8% per annum following a revised 2.6% expansion in January, but the data print may do little to sway the monetary policy outlook as Fed officials continue to forecast a terminal fed funds rate close to 3.00%. Despite the positive prints, the greenback struggled to hold its ground, with EUR/USD bouncing off of the 1.0600 handle to end the day at 1.0671.