Trading U.S. Non-Farm Payrolls & Implication for FOMC Policy

DailyFX

- U.S. Non-Farm Payrolls to Climb 180K, Unemployment Rate to Hold at 7.4%

- Labor Force Participation Slipped to 63.4% from 63.5% in June

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

With the U.S. economy is expected to add another 180K jobs in August, a pickup in job growth may fuel another near-term rally in the dollar as it raises the Fed’s scope to taper the asset-purchase program at the September 17-18 meeting.

What’s Expected:

Time of release: 09/06/2013 12:30 GMT, 8:30 EDT

Primary Pair Impact: EURUSD

Expected: 180K

Previous: 162K

DailyFX Forecast: 160K to 200K

Why Is This Event Important:

Indeed, a strong Non-Farm Payrolls report may spur a more material shift in the policy outlook as the Fed sees a stronger recovery in the second-half of the year, and it seems as though the central bank is slowly moving away from its easing cycle as the world’s largest economy gets on a more sustainable path.

Expectations: Bullish Argument/Scenario

Release

Expected

Actual

ISM Non-Manufacturing (AUG)

55.0

58.6

ISM Manufacturing (AUG)

55.0

58.6

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

2.2%

2.5%

The pickup in business outputs along with the faster rate of GDP growth may encourage a larger-than-expected rise in U.S. employment, and a positive print may foster a more meaningful rally in the dollar as the Fed looks to scale back on quantitative easing.

Risk: Bearish Argument/Scenario

Release

Expected

Actual

ADP Employment Change (AUG)

184K

176K

Challenger Job Cuts (YoY) (AUG)

--

56.5%

Philadelphia Fed Business Outlook (AUG)

15.0

9.3

Nevertheless, the ongoing slack in the real economy may drag on hiring, and another weaker-than-expected print may threaten the bullish sentiment surrounding the reserve currency as the Fed takes a cautious approach in implementing its exit strategy.

How To Trade This Event Risk(Video)

U.S. Non-Farm Payrolls Will Be Traded LIVE in Analyst-on-Demand

Bullish USD Trade: NFPs rise 180K or more; Unemployment Rate holds steady

  • Need to see red, five-minute candle following the print to consider a short trade on EURUSD
  • If market reaction favors a sell trade, short EURUSD 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
  • Shift stop to entry on remaining position once initial target is hit, set reasonable limit

Bearish USD Trade: Employment misses market forecast

  • Need green, five-minute candle to favor a long EURUSD trade
  • Implement same setup as the bearish euro trade, just in reverse

Potential Price Targets For The Release

EURUSD Daily

View gallery

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Forex_Trading_US_Non-Farm_Payrolls_Implication_for_FOMC_Policy_body_ScreenShot075.png, Trading U.S. Non-Farm Payrolls & Implication for FOMC Policy

  • Bearish divergence in Relative Strength Index favors downside targets
  • Negative slope on 10 (1.3284) & 20-Day SMA (1.3295)
  • Former support 1.3220 (50.0% retracement) - 1.3240 (78.6% expansion) seen as new resistance
  • Interim support: 1.3110 (38.2% retracement) & 1.3060-70 (50.0% expansion)

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)

JUL 2013

08/02/2013 12:30 GMT

185K

162K

+64

+89

July 2013 U.S. Non-Farm Payrolls

View gallery

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Forex_Trading_US_Non-Farm_Payrolls_Implication_for_FOMC_Policy_body_ScreenShot074.png, Trading U.S. Non-Farm Payrolls & Implication for FOMC Policy

U.S. Non-Farm Payrolls increased another 162K following the 188K rise in June, while the jobless rate narrowed to 7.4% from 7.6% as discouraged workers left the labor force. The dismal print dragged on the dollar, with the EURUSD climbing above the 1.3250 region, and the reserve currency continued to lose ground throughout the North American trade as the pair closed at 1.3279.

--- Written by David Song, Currency Analyst

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

Follow me on Twitter at @DavidJSong

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