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Trading the News: U.S. Non-Farm Payrolls (based on dailyfx article)
The U.S. Non-Farm Payrolls (NFP) report may spark a bullish reaction in the dollar (bearish EUR/USD) as the economy is expected to add another 215K jobs in in April, while the jobless is projected to narrow to 6.6% from 6.7% the month prior.
What’s Expected:
Why Is This Event Important:
A pickup in job growth paired with a further decline in unemployment may put increased pressure on the Federal Open Market Committee (FOMC) to normalize monetary policy sooner rather than later, but the data may do little to alter the Fed’s policy outlook as Chair Janet Yellen remains reluctant to move away from the zero-interest rate policy (ZIRP).
The ongoing strength in private sector consumption paired with the uptick in business sentiment may prompt a sharp rise in job growth, and a better-than-expected print may generate a near-term pullback in the EUR/USD as it raises the fundamental outlook for the U.S. economy.
However, rising input prices paired with the persistent slack in the real economy may push businesses to scale back on hiring, and a dismal NFP print may heighten the bearish sentiment surrounding the reserve currency as it drags on interest rate expectations.
How To Trade This Event Risk
Bullish USD Trade: NFPs Advance 215K+; Unemployment Slips to 6.6%
- Need to see red, five-minute candle following the NFP print to consider a short trade on EUR/USD
- If market reaction favors a long 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: April Employment Report Disappoints- Need green, five-minute candle to favor a long EUR/USD trade
- Implement same setup as the bullish dollar trade, just in the opposite direction
Potential Price Targets For The ReleaseEUR/USD Daily
March 2014 U.S. Non-Farm Payrolls
EURUSD M5 : 37 pips range price movement by USD - Non-Farm Employment Change news event :
At the March Non-Farm Payrolls release we saw a print of 192K vs. 200K estimates and the figure, largely in line, caused little follow through in the EUR/USD pair. Following chop on both sides, we the week slightly higher. On Wednesday we saw ADP Employment Change figures for April come in slightly above estimates at 220K vs. 2010K expected. This will be the last major event risk for the week a key for monthly opening ranges.
EUR/USD, Gold React Violently to Mixed U.S. Jobs Data
Volatility was highlighted on Friday in the foreign currency and commodity markets after the release of a U.S. Non-Farm Payrolls report that beat expectations. The report showed the U.S. economy in April added the most jobs in more than two years.
According to the latest data, the U.S. labor force added 288,000 new jobs in April, its strongest showing since January 2012. Economists were looking for a gain of 216K. The unemployment rate also dropped more than expected to 6.3%. This was its lowest level since September 2008. The negative aspects of the report included a drop in the size of the labor force and no change in average hourly wages.
The average hourly wages portion of the report caused the most uncertainty, triggering the volatility. This portion of the report is watched closely by the Fed, taking the place of the previously watched unemployment rate. The weak average hourly wages growth is an indication that inflation is non-existent and this is a major concern for the Fed.
The EUR/USD rebounded after the jobs report led to a sharp break. The upside momentum puts the Forex pair in a position to challenge resistance at 1.3872 and 1.3888. Short-covering ahead of next week’s key European Central Bank decision regarding additional stimulus may be the reason for today’s intraday rally.
Today’s mixed jobs report triggered a similar response from the GBP/USD. This market has a genuine upside bias because speculators believe the Bank of England will begin to seriously consider an interest rate hike sooner than expected. Technically, the Forex pair is trading inside an uptrending channel with 1.6921 the upper boundary and 1.6787 the support.
The U.S. jobs data triggered a volatile outside move in the June Comex Gold market because of the wicked U.S. Dollar trading action. After an initial break, however, gold turned higher because of the escalation of violence in Ukraine. Technically, the main trend is down on the daily chart, but the market is poised to take out $1306.60, a move which would turn the main trend to up. The major support remains $1268.40.
June Crude Oil futures finished higher. Traders seemed to be immune from the jobs data and the bearish supply situation. The market stopped short of changing the main trend to down on the daily chart and no appears to be in a position to retrace the break from $104.10. This will be considered a normal correction. However, it may present an opportunity next week for short-sellers to initiate new positions.
A very busy week ended with a drama around the Non-Farm Payrolls and left some uncertainty about the next market moves. The list of events for the coming week includes: US ISM Non-Manufacturing PMI, Trade Balance, Janet Yellen’s testimony, and rate decisions in Australia, the UK and the Eurozone, with the latter promising a lot of action. Here is an outlook on the main market-movers awaiting usr this week.
European inflation numbers came out worse than expected, but is it enough for action from the ECB? Draghi’s headache is probably worsening. In the US, we can see a distinction between the weak GDP in Q1, and the promising data from Q2. Is the bounce strong enough? The Fed acknowledged the gap and in any case, continued tapering for the fourth time. The Non Farm Payrolls provided a great show: the US gained 288K jobs and this certainly boosted the US dollar. However, within an hour, the tables turned and the greenback lost its shine. Is volatility making a comeback?
GOLD (XAUUSD) Fundamentals (based on dailyfx article)
Fundamental Forecast for Gold: NeutralGold Big Levels Loom as Support; Above 1306 is Bullish
Gold prices are softer on the week with the precious metal off by 0.42% to trade at $1300 ahead of the New York close on Friday. The week was marked by continued weakness in gold prices as equities rallied into fresh record highs. The shift came on Friday however, with gold prices reversing course just ahead of key support on the back of a stellar US labor report. Note despite the volatility, gold prices saw little change in April with a gain of just $7 on the entire month. While our longer-term market view remains weighted to the downside for gold, recent price action suggests we should be looking higher heading into the start of May trade.
The April non-farm payroll report highlighted the economic docket this week with employment gauge showing a gain of 288K jobs last month, pushing the headline unemployment rate to 6.3%, its lowest levels since September of 2008. Despite the better than expected headline print, it’s important to take note that the civilian labor force contracted by some 800K workers, bringing the participation rate down to its lowest level since December at 62.8% (a 35-year low). Gold initially spiked lower before quickly rallying back towards the weekly highs on the heels of the release. Although the report topped estimates, a dismal 1Q GDP print earlier in the week and lackluster housing data is unlikely to prompt any change in the Federal Reserve’s outlook and as such, gold could remain supported in the near-term as Yellen maintains a dovish stance on monetary policy.
The economic docket will be rather light next week with only ISM non-manufacturing and trade balance data on tap for the US. Look for comments from central bank Chair Janet Yellen to possibly impact market sentiment as she testifying before the joint economic congressional committee on Wednesday and the senate budget committee on Thursday. That said, we’ll look for broader market sentiment to steer prices with the technical picture offering further clarity.
From a technical standpoint, gold now looks poised for a near-term recovery higher after posting a key outside day reversal ahead of a critical support at $1260/70. This level is defined by the March opening range low, the 23.6% Fibonacci extension taken from the advance off the December 31st low and the 61.8% retracement of the advance of the December low. The rally also took prices through trendline resistance dating back to the 2014 high set on March 17th (interesting to note- that was also a key outside day reversal). As such, or immediate focus is on interim resistance at the 61.8% retracement of the decline off the April highs at $1307.
We will use this level as our near-term bearish invalidation point with a breach above targeting more critical topside resistance targets at $1327/34. A breach surpassing this threshold would suggest that a more significant low was put in last month with such a scenario targeting levels back towards the $1400 threshold. Note that a break and close below $1260 is required to put the broader down-trend back into focus targeting the 2013 lows at $1178.
AUDUSD Fundamentals (based on dailyfx article)
Fundamental Forecast for Australian Dollar: NeutralThe long-term outlook for the AUD/USD remains bearish as the pair carves a lower high in April, and the Australian dollar remains at risk of facing a larger decline in the week ahead should the Reserve Bank of Australia (RBA) adopt a more dovish tone for monetary policy.
Even though the RBA is widely expected to keep the benchmark interest rate at 2.50%, the persistent strength in the local currency may undermine the central bank’s upbeat assessment for the $1T economy, and Governor Glenn Stevens may continue to highlight the ongoing slack in private sector activity as the soft 1Q Consumer Price report limits the scope to normalize monetary policy ahead of schedule. With that said, the RBA may take a more aggressive approach in talking down the local currency, but central bank’s verbal intervention may continue to have a limited impact on the exchange rate as the ongoing pickup in market sentiment heightens the appeal of the higher-yielding currency.
As a result, a further pickup in Australia Retail Sales paired with a 9.5K rise in employment may continue fuel expectations of seeing a RBA rate hike sooner rather than later, and a slew of positive developments may keep the AUD/USD afloat should the central bank show a greater willingness to move away from its easing cycle.
In turn, the 0.9200 handle may continue to provide support in the days ahead, and we would need to see a break and a close below this region to favor a bearish outlook for the AUD/USD as the Relative Strength Index preserves the bullish momentum from earlier this year.
GBPUSD Fundamentals (based on dailyfx article)
Fundamental Forecast for Pound: NeutralThe pound has finished out an impressive month and week. Through April, the currency has advanced against all of its major counterparts. In the past week alone, progress was more restrained; but the perception was just as robust. The clear standout for the pound is GBPUSD (often called ‘Cable’) with a move through 1.6850 that has pushed it to a near five-year high. Having cleared yet another technical boundary on a 10-month climb backed by enviably growth rates and burgeoning rate expectations, is this currency bound to overtake 1.7000 to open up a much bigger bull run?
A medium-term outlook for the sterling must rely more on fundamentals and less on mere technical momentum. Speculative appetite certainly plays a dominant role in both bearing and conviction (momentum), but underlying financial market conditions have sapped the drive from all assets and pairs – including Cable. In seeking out the primary sparks for the British currency, this is one of the few majors that doesn’t simply await its cue from general risk trends. With a historically low benchmark rate that is in the middle of the pack between the US and Australian dollars, there is neither carry nor funding labels attached to the pound. However, as speculation for a rate hike regime from the Bank of England gains further traction; this may prove the fastest horse in a slow race.
Amongst the majors, the BoE is perceived as the most hawkish policy authority behind the RBNZ (which has already hiked rates twice). This hawkishness derives from the impressive reversal in the UK’s economic health last summer and the group’s simultaneous shift away from threatening further stimulus program upgrades. As everything in the FX market is relative – this has presented a particularly stark contrast to the likes of the Fed, ECB and BoJ who maintain an expansionary policy.
Yet, it is important to recognize that the foundation of the pound’s strength is built on expectations rather than current conditions. Gilt yields and swaps show expectations for an opening rate hike from the BoE well ahead of its US counterpart. Having priced in that forecast, though, the burden is now on maintaining that optimism. Projecting a move ahead of the central bank’s own timetable requires a consistent stream of favorable data to persuade the MPC (Monetary Policy Committee) to capitulate. Given the current bearings on rate expectations, it is far more difficult to advance the timetable (a bullish factor) and far easier to postpone it through data.
This focus leverages the potential impact UK data can have on rate forecast and therefore the pound. The most obvious release this week is the BoE rate decision. However, this is likely to prove uneventful. When the central bank does not change its policy, they do not release a statement detailing their reasoning. That said, there are plenty of key indicators that will hit the areas of the economy.
For general economic forecast, Tuesday’s Composite PMI and Friday’s NIESR GDP Estimate for April offer the broadest scope. Yet, particular industry updates may prove more convincing. Manufacturing production for business activity, the RICS home sector reading and construction output for housing, and the trade figure for the external support. During each release, we should keep a leery eye on GBPUSD and the 10-year UK bond yield.
The DAX as you can see rose during the majority of the week, but did find enough resistance in the form of the €9600 level to push the market back down a little bit. We believe that this congestion should send the market higher eventually though, and that pullbacks will be buying opportunities as the DAX has been wildly bullish over the last couple of years. With that being the case, we are buyers above €9700, and most certainly above €9800 as it would open the doors to the €10,000 level.
The NASDAQ fell during the bulk of the week, but found enough support near the 4000 level in order to form a hammer, which of course shows that the market does in fact have plenty of buyers below. With that, a break above the top of the shooting star from the previous week, or the 4200 level if you will, is a nice buying opportunity. We believe that there is a “floor” in this market at the 4000 level, and as a result we are bullish still. On a move above the 4200 level, we think of this market originally will try to get to the 4350 level, and then ultimately the 4500 level.
The MIB rose during the bulk of the week, but found the 22,000 level to be a bit too resistive to continue. This is the second week in a row that we have found resistance in this general vicinity, so we think that we may be heading into a bit of a consolidation move now, but we certainly think that this market remains bullish overall. That being said, we get above the 22,200 level, we are buyers as it would show continued strength. However, we fully anticipate sideways action in the short term.
The IBEX initially fell during the week, but found enough support near the €10,250 level to turn things back around and head towards the €10,500 level. The fact that the market touch the top of the shooting star suggests that the market is going to try to breakout to the upside, and we believe that the IBEX should continue to be one of the better performers in Europe as the Spanish index always gets a lot of “hot money” flowing into it. With that, we are bullish and look at buying on dips, and a break above the top of the range for the week.