EUR/USD: Trading the US NFP May 2014

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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.

Update: Non-Farm Payrolls shoot to 288K in April – USD soars

Indicator Background

Job creation is one of the most important leading indicators of overall economic activity. The release of US Non-Farm Employment Change is thus one of the most highly-anticipated releases, and an unexpected reading can quickly affect the direction of EUR/USD.

Nonfarm Payrolls has shown steady improvement in 2014 and climbed to 192 thousand in March. However, this was well short of the estimate of 199 thousand. The markets are expecting better news from the April release, with the estimate standing at 216 thousand. Will the indicator meet or beat this rosy prediction?

Sentiment and Levels

Eurozone continues to struggle with low inflation levels, and the ECB seems reluctant to step in, although ECB head Mario Draghi has said that negative deposit rates or QE are on the table. If April inflation numbers fall further, deflation concerns could hurt the euro. The exchange rate of the euro remains high and Draghi may again step in if the euro approaches the “line in the sand” level of 1.40. In the US, we finally get top tier indicators for a “clean” month. Given some positive early indications for April, the numbers could certainly be strong. The QE taper didn’t help the dollar, but continuing tapers from the Fed is a sign of confidence on its part in the US economy. So, the overall sentiment is bearish on EUR/USD towards this release.

Technical levels, from top to bottom: 1.4055, 1.40, 1.3964, 1.3865, 1.3830 and 1.3785.

5 Scenarios

  1. Within expectations: 211K to 221K. In such a scenario, the EUR/USD is likely to rise within range, with a small chance of breaking higher.
  2. Above expectations: 222K to 226K: An unexpected higher reading could send the pair below one support line.
  3. Well above expectations: Above 226K: The chances of such a scenario are low. Such an outcome could send the pair below a second support line.
  4. Below expectations: 205K to 210K: A weaker reading than forecast could result in EUR/USD pushing above one line of resistance.
  5. Well below expectations: Below 205K. In this scenario, the pair could move above a second resistance line.

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

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About Author

Kenny Fisher - Senior Writer A native of Toronto, Canada, Kenneth worked for seven years in the marketing and trading departments at Bendix, a foreign exchange company in Toronto. Kenneth is also a lawyer, and has extensive experience as an editor and writer.

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