EUR/USD: Trading the US NFP Nov 2012

The  US Non-Farm Employment Change measures the change in the number of newly employed people in the US, excluding workers in the farming industry. A reading which is higher than the market forecast is bullish for the dollar.

Here are the details and 5 possible outcomes for EUR/USD.

Published on  Friday at 12:30 GMT.

Indicator Background

Job creation is one of the most important leading indicators of overall economic activity. Thus, the publication of employment data is highly anticipated by the markets, and an unexpected reading (higher or lower than the market forecast) can affect the direction of EUR/USD.

The indicator rose nicely in  the  October release, matching the estimate of 114 thousand new workers. The markets are  prediciting another rise  this month, with an estimate of 123K.  Will the indicator  continue to improve, and  meet or beat the forecast?

Sentiment and Levels

Market sentiment soured after the  disappointing  EU  Summit. The euro  reacted by losing ground,  but its troubles are not over. Greece, where a deal  could be  in the works, is not secure in the euro-zone after Wolfgang Schäuble, Germany’s finance minister, cast doubt on its membership. Is it a negotiation trick? Or have the Greeks reached their limits? Spain is in a recession and  unemployment  has topped  25%, but as its funding needs are almost complete for the year, the government seems reluctant to ask for aid – and the lack of movement is weighing on the euro.  As well,  the German locomotive has run out of steam as well, as forward looking data show. In the US, things are getting slightly better, but  given that the  recent Fed announcement was a non-event,  was , the big drama will probably wait for  next week’s  elections in the US.  Thus, the overall sentiment is  bearish on EUR/USD towards this release.

Technical levels from top to bottom: 1.3030, 1.30, 1.2960, 1.29, 1.2814 and 1.2750.

5 Scenarios

1. Within expectations: 117K to 129K: In this scenario, EUR/USD could show some slight fluctuation, but it is likely to remain within range, without breaking any levels.
2. Above expectations: 130K to 136K: A  strong reading  would signal an improving  market, and could push the pair below one support level.
3. Well above expectations: Above 136K: A sharp rise in employment numbers could push EUR/USD downwards, and two or more support levels could be broken.
4. Below expectations:  110K to 116K: The pair could rise on a weak reading, with one resistance line at risk.
5. Well below expectations: Below 110K: Such a scenario would be bearish for the dollar, and EUR/USD could break two or more resistance lines.

For more on the euro, see the EUR/USD forecast.

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