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Trading the NFP with EUR/USD: an upside down V-shaped

The impact of the devastating hurricanes will also be felt in September’s jobs report. Expectations are low, at only 82K. This is around half of 156K jobs gained in August and well below the average we got used to in recent years: around 200K.

With jobs, it is hard to imagine that the actual result will be lower than 82K, a very low number. In addition, the ADP report for the private sector came in line with early predictions, so markets are not expecting a very different number.

So, the risk with job gains is to the upside: a better-than-expected gain in jobs, such as 100K or higher, could boost the dollar. Low expectations mean a potential for a positive surprise, right?

Not so fast.

Wages  are  no  less  important than job gains. And here, the projections are much more optimistic: a rise of 0.3%, which is above the average of 0.2% or around 2.5%. In theory, a rise of 0.3% would compensate for a weak gain of 0.1% that was seen in August.

Gains of 0.4% m/m in wages are quite uncommon and higher rises are almost non-existent. So contrary to jobs, there is room for a downside surprise, and that could hurt the dollar.

Trading the event with EUR/USD

What does this mean for trading? Markets usually react to the headline NFP number and then they digest the rest of the report, with wages standing out. There are additional figures of interest such as the unemployment rate, the participation rate, the underemployment rate and others. Yet only wages make a big impact.

According to this past performance, a potential scenario could be a rise in the dollar on a strong gain in jobs, followed by a sell-off, or at least a climb down, on a potential miss on wages. Perhaps an upside-down V-shaped graph.

However, it is important to remember that the momentum is currently with the US dollar. The push on tax reform and recent positive economic data support the greenback. The euro suffered from two political issues: the elections in Germany which resulted in a fractured parliament and the crisis in Catalonia, where police used force to stop people from voting.

In the current environment, a big disappointment would be needed to push EUR/USD higher, while a neutral report could keep the US dollar bid.

In any case, here are the levels to watch on EUR/USD: 1.20, 1.1910, 1.1850, 1.18 and 1.1690.

Will you be trading this jobs report?


Yohay Elam

Yohay Elam

Yohay Elam: Founder, Writer and Editor I have been into forex trading for over 5 years, and I share the experience that I have and the knowledge that I've accumulated. After taking a short course about forex. Like many forex traders, I've earned a significant share of my knowledge the hard way. Macroeconomics, the impact of news on the ever-moving currency markets and trading psychology have always fascinated me. Before founding Forex Crunch, I've worked as a programmer in various hi-tech companies. I have a B. Sc. in Computer Science from Ben Gurion University. Given this background, forex software has a relatively bigger share in the posts.