What’s Expected:
Time of release: 02/03/2012 13:30 GMT, 8:30 EST
Primary Pair Impact: EUR/USD
Expected: 145K
Previous: 200K
DailyFX Forecast:135K to 160K
Why Is This Event Important:
Employment in the world’s
largest economy is expected to increase another 145K in January, and the
ongoing improvement in the labor market may prop up the U.S. dollar as
the data dampens the scope for another round of quantitative easing. As
the economic recovery gathers pace, we should see the Federal Reserve
continue to soften its dovish tone for monetary policy, and the central
bank may endorse a wait-and-see approach throughout 2012 as the risk of a
double-dip recession subsides. However, as Fed Chairman Ben Bernanke
continues to highlight the ongoing slack within the real economy, the
central bank head may keep the door open to expand the balance sheet
further, and increased speculation for QE3 will dampen the appeal of the
reserve currency as the highly accommodative policy encourages
risk-taking behavior.
Recent Economic Developments
The Upside
|
Release
|
Expected
|
Actual
|
|
Durable Goods Orders (DEC)
|
2.0%
|
3.0%
|
|
NFIB Small Business Optimism (DEC)
|
93.8
|
93.8
|
|
Consumer Credit (NOV)
|
$7.000B
|
$20.374B
|
The Downside
|
Release
|
Expected
|
Actual
|
|
ISM Manufacturing – Employment (JAN)
|
--
|
54.3
|
|
ADP Employment Change (JAN)
|
182K
|
170K
|
|
Consumer Confidence (JAN)
|
68.0
|
61.1
|
Increased demands for U.S.
goods paired with the rise in business sentiment certainly bodes well
for the labor market, and a marked rise in hiring could lead the EUR/USD
to work its way back towards the 20-Day SMA (1.2912) as market
participants scale back bets for a large-scale asset purchase scheme.
However, we may see a slowdown in hiring amid the ongoing slack within
the private sector, and the FOMC may preserve a cautious outlook for the
region as the fundamental outlook remains clouded with high
uncertainty. In turn, a dismal NFP report could spark another short-term
rally in the EUR/USD, and we may see the exchange rate work its way
back towards the 50.0% Fibonacci retracement from the 2009 high to the
2010 low around 1.3500 as market participants raise bets for QE3.
Potential Price Targets For The Release
As U.S. policy
makers strive to strengthen the labor market, a positive employment
report is likely to dampen expectations for additional monetary support,
and the development could pave the way for a long U.S. dollar trade as
the fundamental outlook for the world’s largest economy improves.
Therefore, if NFPs increase 145K or greater in January, we will need a
red, five-minute candle following the release to establish a sell
position on two-lots of EUR/USD. 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
objective will be based on discretion, and we will move the stop on the
second lot to cost once the first trade reaches its mark in an effort
to protect our profits.
In contrast, the slowdown in
private sector consumption paired with weakening outlook for global
growth may lead business to scale back on hiring, and a dismal
employment report could strengthen the case for QE3 as the central bank
aims to encourage a sustainable recovery. As a result, if NFPs miss
market expectations, we will carry out the same setup for a long
euro-dollar trade as the short position laid out 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)
|
|
DEC 2011
|
01/06/2012 13:30 GMT
|
155K
|
200K
|
-35
|
-55
|
December 2011 U.S. Non-Farm Payrolls
The U.S. Non-Farm Payrolls
report showed a 200K rise in employment following the 100K expansion in
November, while the jobless rate unexpectedly slipped to 8.5% from a
revised 8.7% as discouraged workers continue to leave the labor force.
The breakdown of the report showed a 212K rise in private payrolls, with
manufacturing jobs advancing 23K, while public sector employment
weakened another 12K during the same period after contracting 20K in the
previous month. Indeed, the more robust recovery in the labor market
will dampen the Fed’s scope to push through another large-scale asset
purchase program, and we may see the FOMC preserve a wait-and-see
approach in 2012 as policy makers see the economic recovery gradually
gathering pace over the coming months. Indeed, the better-than-expected
employment report propped up the greenback, with the EUR/USD slipping
below 1.2700, but we saw the pair consolidate going into the end of the
week as the exchange rate settled at 1.2714.
Written by: Zeshan Muhammad Ali Awan
Director Technicals
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