Trading the News: U.S. Non-Farm Payrolls

What’s Expected:
Time of release: 08/02/2013 12:30 GMT, 8:30 EDT
Primary Pair Impact: EURUSD
Expected: 185K
Previous: 195K
DailyFX Forecast: 180K to 200K

Why Is This Event Important:

The U.S. economy is expected to add another 185K jobs in July and a positive development may spur a rally in the dollar as it raises the outlook for growth. As the Federal Reserve retains its forward-guidance for monetary policy, a strong employment report may further the argument to taper the asset-purchase program, and the central bank may start to lay out a more detailed exit strategy in the coming months as the recovery gradually gathers pace.

Recent Economic Developments

The Upside/Bullish Scenario

Release

Expected

Actual

ISM Manufacturing- Employment (JUL)

—

54.4

Gross Domestic Product (Annualized) (QoQ) (2Q A)

1.0%

1.7%

ADP Employment Change (JUL)

180K

200K

As the fundamental developments coming out of the U.S. economy raises the scope of seeing a larger-than-expected rise in NFPs, a faster rate of job growth may encourage the FOMC to adopt a more hawkish tone for monetary policy, and a positive development may prompt a sharp rally in the greenback as the central bank appears to be slowly moving away from its easing cycle.

The Downside/Bearish Scenario

Release

Expected

Actual

Consumer Confidence (JUL)

81.3

80.3

Existing Home Sales (MoM) (JUN)

1.5%

-1.2%

Housing Starts (MoM) (JUN)

0.2%

0.0%

Nevertheless, the persistent slack in the economy may continue to drag on employment, and a weak NFP report may spur a short-term pullback in the USD as market participants weigh the outlook for monetary policy.

Potential Price Targets For The Release

The EURUSD may have carved out a near-term top in July as it falls back from the 61.8% Fibonacci retracement around 1.3340, and the pair may continue to give back the rebound from 1.2754 should a strong NFP report further the Fed’s argument to scale back on quantitative easing. However, as a dismal employment print dampens the appeal of the reserve currency, a weaker-than-expected NFP report may spark another run at resistance (1.3340) as it raises the scope of seeing the FOMC delay its exit strategy.

How To Trade This Event Risk

Expectations for another 185K rise in Non-Farm Payrolls instills a bullish outlook for the reserve currency, and the market reaction may pave the way for a long U.S. dollar trade as the data heightens the scope of seeing the Fed scale back on QE. Therefore, if NFPs come in-line with or top market expectations, we will need to see a red, five-minute candle following the release to generate a sell entry on two-lots of EURUSD. Once these conditions are fulfilled, we will set the initial stop at the nearby swing high or a reasonable distance from the entry, and this risk will establish our first objective. The second target will be based on discretion, and we will move the stop on the second lot to cost once the first trade hits its mark in order to preserve our profits.

In contrast, the ongoing slack in the real economy may continue to drag on job growth, and a dismal print may dampen the appeal of the greenback as it fuels speculation for additional monetary support. As a result, if the labor data disappoints, we will implement the same trade setup for a long euro-dollar trade as the short position mentioned above, just in reverse.

Impact that the U.S. Non-Farm Payrolls report has had on USD during the last month

Period

Data Released

Estimate

Actual

Pips Change
(1 Hour post event )

Pips Change
(End of Day post event)

JUN 2013

07/05/2013 12:30 GMT

166K

195K

-35

-44

June 2013 U.S. Non-Farm Payrolls

Employment in the world’s largest economy increased another 195K in June following the revised 195K rise the month prior, while the jobless rate held steady at an annualized 7.6% for the second consecutive month as discouraged workers returned to the labor force. The better-than-expected print propped up the greenback, with the EURUSD slipping below the 1.2850 region, and the reserve currency held rather steady throughout the North American trade as the pair closed at 1.2828.

— Written by David Song, Currency Analyst

To contact David, e-mail dsong@dailyfx.com.

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Source: Daily fx