EUR/USD: Trading the Non-Farm Payrolls

The Non-Farm Employment Change, released by the US Government, measures the change in the number of 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, such as the Non-Farm Employment Change, is highly anticipated by the markets. Traders should be aware that an unofficial indicator, the ADP Non-Farm Employment Change, is scheduled for  publication  one  day before this official US Government release.

The last two readings have been weak, 120 thousand  and 115 thousand  employed people,  respectively. Both readings were well below the market forecast. The markets are expecting better news, with an estimate of 152K. Will the indicator follow suit and rebound upwards?

Sentiment and Levels

ECB head Draghi must be waking up each morning and wondering which crisis to start with first. In Greece, the loud talk about contingency plans for a euro exit is causing  anxiety and instability  and has resulted in an  outlflow of cash from the banks. While  contingency plans  by financial bodies is a necessary step, the implications of a Grexit for the European banking system and for other countries are not fully priced in. Here’s how to trade the Grexit with EUR/USD.

Spain has serious problems of its own, with the banking system and the regions leaning on the government for money. They are already shut of the markets. Spain is paying 6.7% on bonds, and this cost of borrowing is simply not sustainable. A request for an international bailout is very possible, which  could throw  the markets into turmoil. Thus, the overall sentiment is  bearish on EUR/USD towards this release.

Technical levels from top to bottom: 1.2623, 1.2587, 1.25, 1.24, 1.2330 and 1.22.

5 Scenarios

1. Within expectations: 146K to 158K: 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: 159K to 165K: A reading above expectations would signal economic expansion, and could push the pair below one support level.
3. Well above expectations: Above 165K: A sharp rise in employment numbers could push EUR/USD downwards, and two or more support levels could be broken.
4. Below expectations: 139K to 145K: The pair could rise on a weak reading, with one resistance line at risk.
5. Well below expectations: Below 139K: 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.