Trading the News: U.S. Non-Farm Payrolls
What’s Expected:
Time of release: 03/08/2013 13:30 GMT, 8:30 EST
Primary Pair Impact: EURUSD
Expected: 163K
Previous: 157K
DailyFX Forecast: 160K to 185K
Why Is This Event Important:
The U.S. economy is expected to add another 163K job in February, and the ongoing improvement in the labor market should prop up the dollar as it dampens the Fed’s scope to expand the balance sheet further. As the world’s largest economy gets on a more sustainable, we should see a growing number of central bank officials adopt a more neutral to hawkish tone for monetary policy, and the FOMC may look to switch gears later this year as the outlook for growth and inflation improves.
Recent Economic Developments
The Upside
Release
Expected
Actual
ADP Employment Change (JAN)
170K
198K
Non-Defense Capital Goods Orders ex Aircrafts (JAN)
0.0%
6.3%
Building Permits (JAN)
1.2%
1.8%
The Downside
Release
Expected
Actual
Gross Domestic Product (Annualized) (QoQ) (4Q P)
0.5%
0.1%
Personal Consumption (4Q P)
2.3%
2.1%
Domestic Vehicle Sales (FEB)
12.00M
11.99M
The rebound in business investments along with the ongoing expansion in building activity certainly bodes well for the U.S. labor market, and we may see a growing number of discouraged workers return to the labor force as the economic recovery gradually gathers pace. However, the recent lull in private sector activity paired with the slowdown in household spending may prompt firms to scale back on hiring, and a dismal development may trigger a sharp selloff in the dollar as the FOMC keeps the door open to expand the balance sheet further.
Potential Price Targets For The Release
Although the European Central Bank interest rate decision propped up the EURUSD, the lack of momentum to push back above the 38.2% Fibonacci retracement from the 2009 high to the 2010 low around 1.3120 reinforces out bearish outlook for the pair as the key figure appears to be providing near-term resistance. In turn, we still anticipate a move back towards the 23.6% Fib around 1.2640-50, and the bullish sentiment surrounding the dollar may gather pace throughout the year amid the shift in the policy outlook.
How To Trade This Event Risk
Forecasts for a faster rate of job growth instills a bullish outlook for the greenback, and a positive print may pave the way for a long U.S. dollar trade as market participants scale back bets for more quantitative easing. Therefore, if NFPs increase 163K or greater in February, we will need to see a red, five-minute candle following the report to establish a sell entry on two-lots of EURUSD. Once these conditions are met, we will set the initial stop at the nearby swing high or a reasonable distance from the entry, and this risk will generate our first target. The second target will be based on discretion, and we will move the stop on the second lot to breakeven once the first trade hits its mark in order to preserve our profits.
In contrast, the slowdown in private consumption paired with the ongoing slack in the real economy may continue to drag on employment, and a dismal labor print may drag on the greenback as it fuels bets for more QE. As a result, if NFPs fall short of market expectations, we will implement the same strategy for a long euro-dollar trade as the short position laid out above, just in the opposite direction.
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)
JAN 2013
2/01/2013 13:30 GMT
165K
157K
-28
+1
January 2013 U.S. Non-Farm Payrolls
U.S. Non-Farm Payrolls increased another 157K in January after expanding a revised 196K the month prior, while the jobless rate advanced to 7.9% from 7.8% as discouraged workers returned to the labor force. The initial reaction to the employment report was short-lived, with the EURUSD slipping back below the 1.3650 figure, but the dollar struggled to hold its ground throughout the North American trade as the pair ended the day at 1.3637.
— Written by David Song, Currency Analyst
To contact David, e-mail dsong@dailyfx.com.
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Source: Daily fx