EUR/USD: Trading the US NFP Oct 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. The indicator is one of the most highly-anticipated US employment releases. 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.  Non-Farm  Employment Change is considered one of the most important  employment indicators, and an unexpected reading can affect the  direction of EUR/USD.

The  September release came in at 96 thousand newly employed persons, well below the  forecast of  123K. The markets are expecting an improvement this month, with a estimate of 116K. Will the indicator rebound in October,  and  meet or beat the forecast?

Sentiment and Levels

The situation in Spain continues to worsen, weighing on the euro. The new austerity measures will hurt the economy and raise social tensions, which are already at heightened levels as seen in violent protests in Madrid and the Catalan strive for independence. However, there is no carrot: the de-facto abandonment of the direct banking recapitalization scheme by the northern countries just adds to the burden. Rumors continue to swirl about an imminent request for aid by Spain, but Germany is none too pleased about having to fund yet another bailout. In addition, no big breakthrough is expected with Greece this week, and the Chinese slowdown is also aiding the dollar. While US figures remain mediocre and even slightly recessionary, and despite QE-infinity, the greenback remains a safe haven currency. Thus, the overall sentiment is  bearish on EUR/USD towards this release.

Technical levels from top to bottom: 1.3105, 1.3060, 1.30, 1.2960, 1.29 and 1.2814.

5 Scenarios

1. Within expectations: 110K to 122K: 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: 123K to 129K: A reading above expectations would signal a stronger US job market, and could push the pair below one support level.
3. Well above expectations: Above 129K: A sharp rise in employment numbers could push EUR/USD downwards, breaking two or more support levels.
4. Below expectations: 103K to 109K: The pair could rise on a weak reading, with one resistance line at risk.
5. Well below expectations: Below 103K:  A very weak release  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.