EUR/USD: Trading the US NFP Sep 2012

US Non-Farm Employment Change measures the change in the number of newly employed people in the US, excluding workers in the farming sector. 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 could affect the direction of EUR/USD.

Non-Farm Employment Change  looked very sharp in  August at 163 thousand, easily beating the market forecast  of 101K. The markets have scaled back their  forecast for  this month, with an estimate of 121K. Will the indicator again surprise the markets with a very strong reading?

Sentiment and Levels

With tensions rising within the ECB  over the proposed bond-buying program, we might get more details from ECB  President  Mario  Draghi, but action, including a Spanish request for aid, will probably all wait until next week, when the German constitutional court is expected to approve the ESM bailout fund. Data from Europe remains generally weak, as underscored by weak retail sales and PMI numbers earlier this week.

In the US, we could get more positive signs from the job market, lowering expectations for QE3. Without a threat of recession,  QE  is unlikely, especially after Bernanke’s recent speech in Jackson Hole. The picture  could change as early as next week, but for now, there’s more on the downside for the pair. Thus, the overall sentiment is bearish on EUR/USD towards this release.

Technical levels, from top to bottom: 1.2750, 1.2670, 1.2624, 1.2587,  1.2520 and 1.2460.

5 Scenarios

1. Within expectations: 113K to 128K. In such a scenario, the EUR/USD is likely to rise within range, with a small chance of breaking higher.
2. Above expectations: 129K to 136K: An unexpected higher reading can send  the pair  below one  support level.
3. Well above expectations: Above 136K: The chances of such a scenario are low. Such an outcome would push  down on  the pair, and a second  support line  might be broken as a result.
4. Below expectations: 105K to 112K: A smaller increase than forecast could cause EUR/USD to  break one line of resistance.
5. Well below expectations: Below 105K. In this scenario, the  pair could  break a second  resistance line.

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